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Discussion Paper

No. 2009-33 | July 10, 2009
Minimum Quality Standards and Novelty Requirements in a One-Shot Development Race

Abstract

The authors examine the timing and quality of product introduction in an R&D stopping game, where they allow for horizontal and vertical differentiation in the product market. They observe that discontinuous changes in introduction dates can occur as firms’ abilities as researchers change. Further, the authors observe differences in the social optimality of entry patterns depending on the underlying research abilities of the firms. Minimum quality standards and novelty requirements can play a role in correcting these suboptimal patterns of entry. The authors find that increasing the novelty requirement does not necessarily increase either the profits or, consequently, the investment levels of the initial innovator, contrary to much of the cumulative innovation literature. When the research abilities of the firms differ, either the high ability firm or the low ability firm may be the first mover. Policy interventions have much more ambiguous welfare effects in this asymmetric case, as they can change the order of entry.

Paper submitted to the special issue
The Knowledge-Based Society: Transition, Geography, and Competition Policy  

JEL Classification

L15 L16 O31 O33 O34

Cite As

Jacek Prokop, Pierre Regibeau, and Katharine Rockett (2009). Minimum Quality Standards and Novelty Requirements in a One-Shot Development Race. Economics Discussion Papers, No 2009-33, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2009-33

Assessment



Comments and Questions


Anonymous - Referee Report 1
August 29, 2009 - 00:09

see attached file


Anonymous - Referee Report 2
September 28, 2009 - 08:42

see attached file


Anonymous - Referee Report 3
October 07, 2009 - 09:47

see attached file