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Research Details

Arrow Meets Hotelling: Innovation in the Product Space, American Economic Association Papers and Proceedin

Abstract

We combine a spatial model of innovation with Hotelling's model of competition. Innovations are vertically and also horizontally differentiated. Potential innovators choose not only whether to innovate but also how to innovate. The bolder they are with a new product, the riskier is the outcome but the softer will be the resulting market competition with existing products. We use the model to explore the interaction of competition and innovation and address several classic questions. The recurring finding is that increased market competition drives not only more innovation but more novel and riskier innovation that offers a higher chance of breakthrough outcomes

Type

Article

Author(s)

Niko Matouschek, Steven Callander, Nicolas Lambert

Date Published

2021

Citations

Matouschek, Niko, Steven Callander, and Nicolas Lambert. 2021. Arrow Meets Hotelling: Innovation in the Product Space. American Economic Association Papers and Proceedin. 111: 538-43.

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