TY  - JOUR
AU  - Dutta,Prajit K.
AU  - Lach,Saul
AU  - Rustichini,Aldo
TI  - Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4473
PY  - 1993
Y2  - September 1993
UR  - http://www.nber.org/papers/w4473
L1  - http://www.nber.org/papers/w4473.pdf
N1  - Author contact info:
Saul Lach
Department of Economics
Hebrew University
Jerusalem, 91905
ISRAEL
Tel: 972-2-5883253
Fax: 972-2-5816071
E-Mail: saul.lach@huji.ac.il

Aldo Rustichini
Department of Economics
University of Minnesota
Minneapolis, MN  55455
E-Mail: aldo.rustichini@gmail.com
AB  - 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.
ER  -