Journal of Evolutionary Economics

, Volume 21, Issue 2, pp 191–229 | Cite as

Diversification: a road to inefficiency in product innovations?

  • Herbert DawidEmail author
  • Marc Reimann
Regular Article


Motivated by recent empirical observations made in industries such as the automobile industry, this paper employs an agent-based industry simulation model to examine the strategic relationship between product diversification strategies and some aspects of the product innovation strategy of a single producer. In particular, it is established that an increase in the average degree of product diversification in an industry increases the incentive for a producer to reduce the time to market for innovations at the expense of product quality. However, if all firms adapt their strategies according to these incentives, this results in a severe loss of average firm profits in the industry and also to a reduction in consumer surplus. It is then studied how the strength of this dilemma depends on several parameters describing the market structure and patent policy.


Product innovation Product diversification Time-to-market Agent-based simulation 

JEL Classification

D83 L11 O32 



We are grateful for helpful comments of two anonymous referees. The research assistance by Mark Perrey is gratefully acknowledged.


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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Department of Business Administration and EconomicsBielefeld UniversityBielefeldGermany
  2. 2.Institute of Mathematical EconomicsBielefeld UniversityBielefeldGermany
  3. 3.Institute of Statistics and Operations ResearchUniversity of GrazGrazAustria

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