Investment In Product Innovation Research Articles

A product innovation game with managerial delegation

AbstractThis research introduces sales delegation in a product innovation game by considering Cournot and Bertrand duopolies. The article first revisits the existing results with profit‐maximising firms, showing that a prisoner's dilemma with undifferentiated products cannot occur in a Bertrand rivalry setting. Then, by considering the separation between ownership and control, the work shows, when managers are delegated to choose only over quantity or price in the product market, that sales delegation (1) increases (resp. reduces) the likelihood to innovate (not to innovate) under Cournot competition, and (2) increases the likelihood to innovate under Bertrand competition compared to the profit‐maximising setting. Unlike this, if managers are delegated to choose over quantity or price in the product market and product innovation is in the decision‐making stage, sales delegation reduces the likelihood of innovation in both Cournot and Bertrand rivalry settings. Overall, results pinpoint the importance of the managerial delegation in affecting investments in product innovation compared to the profit‐maximising model.

Merger and product innovation under cross ownership and cooperative R&D

We show that merger may increase investments in product innovation, and expected welfare if there is either passive cross ownership or cooperative research. Hence, the antitrust authorities may not need to be too concerned about mergers in these situations.

Can innovation affect the relationship between Environmental, Social, and Governance issues and financial performance? Empirical evidence from the STOXX200 index

AbstractInnovation represents one of the most important drivers in the business context. Drawing upon the research on corporate social responsibility (CSR), shared value, and innovation, this paper aims to analyze the relationship between Environmental, Social, and Governance (ESG, a form of CSR) sustainability policies and corporate financial performance (CFP) by investigating the mediating role of Innovation (i.e., investment in research and development, R&D). Our sample comprises 148 European companies belonging to the Euro Stoxx index in the period 2009–2014. For high‐innovation companies (HICs), we find positive relationships between some Social (S) issues and CFP and weaker linkages between Environmental (E) indicators and CFP. In contrast, Governance (G) issues (i.e., issues related to board structure and board function) negatively influence CFP. In contrast, for medium‐innovation companies (MICs), these relationships are absent and low‐innovation companies (LICs) show negative relationships. Adopting reporting frameworks or guidelines affects CFP only in HIC. We introduce an original interpretative model, which identifies innovation (R&D) as the main driver in corporate sustainability, particularly in light of Social issues related to the production of a good or service. In terms of managerial implications, we identify three key factors for effectively embedding ESG in organizations' policies: investment in product innovation, compliance with environmental regulations, and corporate choices on brands and channels of external communication.

A dynamic analysis of a monopolist's quality improvement, process innovation and goodwill

<p style='text-indent:20px;'>Although there are many literatures on firms' product and process innovation in recent years, the effects of advertising-based goodwill and consumers' reference quality on firms' product and process innovation are rarely considered. Therefore, the significant features of our study are: (i) introducing the concept and definition of the consumers' reference quality; (ii) considering the effect of product quality on goodwill; (iii) the customers' demand function depends on product quality, product price, advertising-based goodwill and the difference between product quality and reference quality, and the demand function takes a linear form. Our results suggest that (i) the system admits unique saddle-point steady-state equilibrium under the monopolist decision-making and the social planner regulation; (ii) with the increases of the product quality and goodwill, the corresponding investments also increases; however, with the increase of marginal cost and reference quality, the corresponding investment decreases; (iii) the monopolist's investment in one direction boosts the other in the neighborhood of the steady-state investments in product innovation, process innovation and advertising-based goodwill, respectively; and (iv) the monopolist will have an underinvestment problem as compared with the social planner.</p>

Product Innovation Investment under Bankruptcy Threat

Product Innovation Investment under Bankruptcy Threat

Product Innovation with Industry Leaders and Consumer Switching Costs

We analyze firms’ investment in product innovation when there are heterogeneous consumer switching costs in markets with an industry leader. We show that higher switching costs require a successful entrant to charge a higher price and increase investment in product innovation to remain competitive, while an industry leader’s best strategy is to increase R&D, ensuring greater market share and profit. Alternatively, with relatively low switching costs, entry reduces an industry leader’s R&D investment. Our results provide evidence of a co-existence between “Arrowian” and “Schumpeterian” investment theories, which hinges on the magnitude of consumer switching costs. Overall, entry in an innovative industry may be socially undesirable due to switching costs. Our analysis suggests that an industrial policy designed to lower switching costs (such as product standardization) unambiguously increases consumer surplus and overall welfare but may affect product innovation negatively.

A dynamic analysis of the investment in product innovation in a supply chain under reference price effect: competition vs cooperation

ABSTRACT This paper aims to investigate the effects of vertical competition or cooperation along a supply chain on product innovation under the reference effect. To this end, we develop game-theoretical models on the cooperative and non-cooperative supply chains and analyse the optimal decisions of the upstream manufacturer and the downstream retailer. Then, the innovation investment levels under vertical competition and under vertical cooperation are compared. We find that whether the innovation investment is higher under vertical competition depends critically on the strength of the reference effect. In particular, although a stronger reference effect lowers the product innovation investment in a cooperative supply chain, it may instead increase the investment in a non-cooperative supply chain if the retailer shares just a small proportion of the sales revenue with the manufacturer. As a result, the product innovation investment can be higher under vertical competition than under vertical cooperation in the presence of reference price effect, and even more so when the reference price effect grows stronger, the product innovation investment becomes more costly, and the demand for the product becomes more sensitive to price but less sensitive to quality.

Dynamic product innovation and production decisions under quality authorization

Abstract We consider the joint product innovation and production decisions of a manufacturing firm under the existence of quality authorization from a 3rd party, which has gained growing popularity in recent years. A dynamic control model is developed to analyse the effects of quality authorization. Combining the techniques of Pontryagin maximum principle and backward induction, the optimal decisions on production and investment in product innovation before and after attaining the quality authorization is analysed. The analytical solution of the optimal investment and production decisions is derived providing that the time for the firm to obtain the quality authorization is known. To fully solve the firm’s optimization problem, an iterative algorithm is then introduced to calculate the best time of attaining the quality authorization. We find that although the firm should have a continuous and incremental improvements in product quality, there can be jumps in the optimal production and investment levels. While the investment in product innovation is higher before obtaining the quality authorization than that after obtaining the quality authorization, the production is lower before obtaining the quality authorization. Moreover, the firm should attain the quality authorization sooner under a less costly the product innovation investment, a lower depreciation rate due to ageing of technology, a smaller production cost, and a lower interest rate. Finally, we compare our results with existing studies and discuss the managerial implications.

Product innovation capability, export scope and export experience

PurposeBy applying the logic of the resource-based view and process-based internationalisation theory, this study aims to provide a better understanding of the effects of product innovation capability on the export scope of firms based in developing countries and the role of export experience as a facilitating mechanism.Design/methodology/approachUsing survey data obtained from three developing countries, two main research hypotheses were empirically tested: a quadratic relationship exists between product innovation capability and export scope and export experience has a moderating effect in this relationship.FindingsProduct innovation capability and export scope have a U-shaped relationship, and export experience exerts a moderating effect. The greater the export experience is, the more the relationship between product innovation and export scope changes, taking on a more inverted U-shaped form.Practical implicationsFirms based in developing countries need to catch-up on innovation capabilities before being able to succeed in international markets. Managers must be aware that initial investments in product innovation could not pay off immediately and that significant additional efforts might be needed to obtain noteworthy results in terms of international expansion.Originality/valueThis study is among the first to focus on the curvilinear relationship between product innovation capability and export scope for firms based in developing countries while accounting for the moderating role of firms’ export experience.

How Chinese State-Owned Enterprises Change Their Dynamics in New Product Innovation?

The innovation of state-owned enterprises and its adaptation to the market competition have been in the spotlight of studies. According to the panel data form Statistics on Science and Technology-Oriented Activities of Industry Enterprises, this research measures and contrasts the new product innovation investment and performance of Chinese State-Owned Enterprises (SOEs) and non-SOEs. It reveals that market competition is a positive effect on new product innovation input and output of state-owned enterprises, as non-SOE, the relationship between competition intensity and new product innovation output of state-owned enterprises appears exponential relationship. Furthermore, it discovers that non-SOE is more sensitive to competition intensity than SOE. Under the different competitive environment, both of them play differents role on promoting development of innovation and stabilising the market.

Cost-Information Transparency and Intertemporal Pricing

A firm’s cost of its products is increasingly transparent to consumers as third parties publish such information. Cost transparency stymies the ability of low-cost firms to intertemporally price discriminate as consumers now correctly anticipate their future price drops and delay purchases as it is no longer feasible to pool price with the high-cost firms. Using a dynamic model with forward-looking consumer choice and firm pricing, the paper assesses how cost transparency impacts the firm’s pricing strategy and the resultant impact on consumer surplus and firm profits. Cost transparency narrows the profit differential between the low-cost and high-cost firms. We show that, interestingly, cost transparency can hurt both consumers and low-cost firms ex post. However, in expectation, cost transparency leads to a win-win for both the firm and consumers, which implies that cost transparency can foster new product innovation investment by firms. Finally, we consider future price drops arising from potential future entry and find that the profit can be independent of the firm’s cost for a range of cost values.

Inclusive Innovation: Broader Market Coverage for Innovative Products with Deliberate Supply Chain Leadership

New technological and product innovations, including some life-saving ones, conventionally traverse a sequentially downward path of gradually lowering costs and prices, which limits their initial availability and affordability to the lower-end of the market. In this paper, we focus on the central question of how to achieve broader market coverage for innovative products, which we refer to as inclusive innovation. We unearth a new innovation investment degree of freedom in a multi-tiered supply chain that offers product development firms the ability to expand market coverage. Through an analytical model grounded in industrial practice, we show that deliberately choosing which firm in a multi-tiered supply chain invests in product quality improvement and acts as a leader by initiating contract offers can have a significant impact on the market coverage of the product. Our model deals with products that have non-linear development and production costs and a product lifecycle that is characterized initially by product innovation being the most dominant effect followed by a period of process innovation. We demonstrate that aligning product innovation investment decision making with price-quantity decision-making leads to greater total supply chain profits and market coverage. In addition, we are able to identify a sequence of deliberate leadership transfers by which contract leadership is shifted upstream during the product innovation phase and shifted back to downstream entities during the process innovation phase so as to maintain highest market coverage during the lifecycle of a product. We go beyond a normative prescription by identifying conditions under which tierwise rational leadership transfers occur and discuss how to align individually rational schedule of leadership transfers with an optimal schedule that results in the highest market coverage. These findings have subtle, but important, implications for firms launching innovative products and aspiring to expand market coverage. Specifically, to obtain broader market coverage for its innovations, innovating firms in a supply chain should finely tune the level of innovation investment, identity of the investor, and contract leadership. These results help to explain the evolution of industries such as automotives and personal computers and also offer opportunities for new industries and firms to expand both market coverage and profits.

Exploring the relationships between innovation and internationalization of small and medium‐sized enterprises: A nonrecursive structural equation model

AbstractThis article seeks to provide more insights on the two‐way link between internationalization and innovation by considering total, direct, and reciprocal effects using a nonrecursive structural model. Innovation is defined through product and process development, while internationalization is defined through inward and outward internationalization in both closer and farther markets. The results suggest that these two major sources of growth are linked by different sets of relations, from the investment in product and process innovation to outward internationalization in a closer market, or from inward and outward internationalization in farther markets to the investment in product innovation. Copyright © 2013 ASAC. Published by John Wiley & Sons, Ltd.

Corporate Takeovers and Economic Efficiency

I review recent takeover research that advances our understanding of “who buys who” in the drive for productive efficiency. This research provides detailed information on text-based definitions of product market links between bidders and targets, the role of the supply chain and industrial networks in driving takeovers, target plant efficiency, and pre- and post-takeover investment in product innovation. Moreover, recent evidence adds to our understanding of “how firms are sold” (transaction efficiency). Almost half of takeovers involving public targets are initiated by the seller and not by the buyer. Targets are strongly averse to bidder toeholds, and the merger negotiation process strongly protects proprietary information. Takeover premiums leave traces of rational bidding strategies, including bid preemption and winner’s curse avoidance. Recent tests employing exogenous instrumentation of bidder valuations reject that bidder shares are systematically overpriced in all-stock bids and suggest that bidder synergy gains are much larger than previously thought.

Corporate Takeovers and Economic Efficiency

I review recent takeover research which advances our understanding of buys who in the drive for productive efficiency. This research provides detailed information on text-based definitions of product market links between bidders and targets, the role of the supply chain and industrial networks in driving takeovers, target plant efficiency, and pre- and post-takeover investment in product innovation. Moreover, recent evidence adds to our understanding of how firms are sold (transaction efficiency). Almost half of takeovers involving public targets are initiated by the seller and not by the buyer. Targets are strongly averse to bidder toeholds, and the merger negotiation process strongly protects proprietary information. Takeover premiums leave traces of rational bidding strategies, including bid preemption and winner’s curse avoidance. Recent tests employing exogenous instrumentation of bidder valuations reject that bidder shares are systematically overpriced in all-stock bids, and suggest that bidder synergy gains are much larger than previously thought.

Globalization, product differentiation, and wage inequality

Abstract This paper develops a two‐country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms’ strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Stronger import competition increases innovation incentives, and thereby the relative demand for skill. An intra‐industry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. As long as some industries remain shielded from international competition, the welfare implications of globalization are found to be generally ambiguous.

Model of Collaborative Knowledge Innovation with Distributor Participation in Supply Chain

Considering the influence of distributor participation, collaborative knowledge innovation is studied by building the game model from the decision-making viewpoint of manufacturer. Changes of market demand due to the collaborative innovation and the behaviors of participators are also analyzed. The results show that distributor participation can spur manufacturer to increase product innovation investment and be available to realize the higher level of innovation, and that the degree of distributor participation is not only affected by its own cost of the collaborative innovation, but also the investment of manufacturer. Furthermore, the research gets the boundary condition of different decision selection for manufacturer and its distributor.

Globalization, Product Differentiation and Wage Inequality

This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms' strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Greater import competition increases innovation incentives, and thereby the relative demand for skill. An intraindustry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. In addition, since product differentiation is resource consuming, freer trade entails a potential trade-off between production and variety. The import competition effect highlighted by the model, which plays a key role in determining the general equilibrium, is supported by panel data on Chilean manufacturing plants.

Globalization, Product Differentiation and Wage Inequality

This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms' strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Greater import competition increases innovation incentives, and thereby the relative demand for skill. An intraindustry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. In addition, since product differentiation is resource consuming, freer trade entails a potential trade-off between production and variety. The import competition effect highlighted by the model, which plays a key role in determining the general equilibrium, is supported by panel data on Chilean manufacturing plants.

Economic Integration, Process and Product Innovation, and Relative Skill Demand

AbstractThe interaction between economic integration, product and process innovation, and relative skill demand is analyzed in a model of international oligopoly. Lower trading barriers increase the degree of foreign competition. The competing enterprises respond by investing more aggressively in lowering marginal costs of production. Moreover, firms reduce the substitutability of their products through additional investment in product innovation. The paper also shows that the relative demand for skilled workers may increase as a result.