This paper considers investment behavior of duopolistic firms subject to technological progress. It is assumed that initially both firms offer a homogeneous product, but after a stochastic waiting time they are able to realize a product innovation. Production capacities of both firms are product...

We employ a dynamic market model with endogenous creation of submarkets to study the optimal product innovation strategies of incumbent firms. Firms invest in production capacity and R&D knowledge stock, where the latter determines the hazard rate of innovation. We find that under Markov Perfect...

This paper analyzes how the transferability of production capacities from an established to a new product influences the incentives of a firm to invest in R&D. A dynamic duopoly model is considered, where initially both firms offer a homogeneous product. The firms invest in production capacities...

We study in a dynamic framework how product innovation activities of a firm are influenced by its production capacity investments for an established product and vice versa. The firm initially has capacity to sell an established product, and it also has the option to undertake an R&D project,...