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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

Abstract

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.

Keywords

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

JEL Classification

D83 L11 O32 

Notes

Acknowledgements

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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