Disentangling the effects of process and product innovation on cost and demand

We explore in this note different structural models of the impact of process and product innovation on firms' demand and production cost functions. We find that the introduction of process and product innovations affects them differently as could be expected. Both product and process innovation...

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Bibliographic Details
Published in:Economics of innovation and new technology 2017-01, Vol.26 (1-2), p.150-167
Main Authors: Jaumandreu, Jordi, Mairesse, Jacques
Format: Article
Language:English
Subjects:
Economic models
Innovation
Innovations
Pricing policies
process innovation
Product development
Product innovation
R&D
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Summary:We explore in this note different structural models of the impact of process and product innovation on firms' demand and production cost functions. We find that the introduction of process and product innovations affects them differently as could be expected. Both product and process innovation shift forward the demand for the products of the firm. Process innovation reduces production marginal cost, but not always. A possibility, that we cannot prove or reject with the current specification of our models and available data, is that process innovation associated with product innovation raise marginal cost. Interestingly, we also find that advertising significantly augments demand but does not affect production marginal cost. To obtain broader conclusions, richer data will be needed allowing an enlargement of the model, in which process and product innovations could be specified distinctively and well identified.
ISSN:1043-8599
1476-8364
DOI:10.1080/10438599.2016.1205276