An analysis of cost-reduction innovation under capacity constrained inputs. Issue 6 (1st February 2019)

• Record Type: Journal Article
• Authors: Nie, Pu-yan; Wang, Chan
• Is Part Of: Applied economics. Volume 51:Issue 6(2019)
• Page Start: 564
• Page End: 576
• Publication Date: 2019-02-01
• Subjects: Capacity constraints -- cournot competition -- cost-reduction innovation -- total capacity -- game theory; C72 -- L11; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2018.1497850
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: This article focuses on duopoly cost-reduction innovation with the upstream input subjected to capacity constraints. By two-stage duopoly model, some interesting conclusions are achieved. Firstly, the higher efficiency firms invest the less in cost-reduction innovation and require the fewer resources under capacity constraints. Therefore, lower efficiency firms launch the lower price strategies. To our surprise, lower efficiency firms seem to be more aggressive both in innovation and in outputs. Secondly, symmetric firms' innovation decreases with the total resources while asymmetric firms' innovation increases with the total capacity. Finally, innovation gap decreases with both the total capacity and the degree of substitutability.