NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology

Prajit K. Dutta, Saul Lach, Aldo Rustichini

NBER Working Paper No. 4473
Issued in September 1993

After the initial breakthrough in the research phase of R&D a new product undergoes a process of change, improvement and adaptation to market conditions. We model the strategic behavior of firms in this development phase of R&D. We emphasize that a key dimension to this competition is the innovations that lead to product differentiation and quality improvement. In a duopoly model with a single adoption choice, we derive endogeneously the level and diversity of product innovations. We demonstrate the existence of equilibria in which one firm enters early with a low quality product while the other continues to develop the technology and eventually markets a high quality good. In such an equilibrium, no monopoly rent is dissipated and the later innovator makes more profits. Incumbent firms may well be the early innovators, contrary to the predictions of the hypothesis.

download in pdf format
   (288 K)

email paper

This paper is available as PDF (288 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4473

Published: Journal of Economics and Management Strategy, vol. 4, no. 4, Winter 1995, pp.563-589.

Users who downloaded this paper also downloaded these:
Elmendorf and Mankiw w6470 Government Debt
Hall and Khan w9730 Adoption of New Technology
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us