Product versus Process: Innovation Strategies of Multiproduct Firms
American Economic Journal: Microeconomics
vol. 10,
no. 1, February 2018
(pp. 236-77)
Abstract
We investigate the effects of better access to foreign markets on innovation strategies of multiproduct firms in industries with different scope for product differentiation. Industry-specific demand and cost linkages induce a distinction between the returns to innovation. In differentiated industries, cannibalization is lower and firms invest more in product innovation. In homogeneous industries, firms internalize intra-firm spillovers and invest more in process innovation. Using firm-level data and large exchange rate devaluations, we show that better access to foreign markets increases the incentive to innovate. However, we exploit differential effects across industries and show that the innovation strategies depend on the scope of differentiation.Citation
Flach, Lisandra, and Michael Irlacher. 2018. "Product versus Process: Innovation Strategies of Multiproduct Firms." American Economic Journal: Microeconomics, 10 (1): 236-77. DOI: 10.1257/mic.20150272Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- F14 Empirical Studies of Trade
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- L60 Industry Studies: Manufacturing: General
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O31 Innovation and Invention: Processes and Incentives
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