Product and process innovation: the implication of making comparisons between uniform pricing monopolist and second-degree price discriminating monopolist

Abstract

ABSTRACT The question of simultaneous product and process innovation, price discrimination is crucial for technologically-evolving industries. In this paper, we assume that there are two different kinds of consumers, and each consumer has his own demand function. We find that both process innovation and product innovation impact the pricing policy. Depending on the number of consumers, there may exist substitutability between process innovation and product innovation. Moving from single-price regime to second-degree price discrimination, we show that allowing price discrimination will increase investment levels in product and process innovation.