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Durable‐Goods Monopoly with Endogenous Innovation
Author(s) -
Nahm Jae
Publication year - 2004
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2004.00012.x
Subject(s) - monopoly , durable good , microeconomics , economics , product (mathematics) , face (sociological concept) , product market , industrial organization , sociology , incentive , social science , geometry , mathematics
While selling an existing product, a durable‐goods monopolist may develop a new, improved product. The firm must consider the interaction between its intertemporal pricing and research and development (R&D) decisions. The interactions show a sharp dichotomy depending on pricing regimes. When it is optimal for the firm to continue to sell the old model along with the new model, the interactions disappear. However, when it is optimal for the firm to discontinue the sale of the old model after introducing the new model, the firm will face a time‐inconsistency problem in its R&D decision .