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Quality Improvement and Process Innovation in Monopoly: A Dynamic Analysis

Author

Listed:
  • Luca Lambertini

    (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy)

  • Raimondello Orsini

    (Department of Economics, University of Bologna, Italy)

Abstract
We investigate the R&D portfolio of a monopolist investing in cost-reducing and quality enhancing R&D. Incentives along the two directions are inversely related to the size of market demand, and independent of each other. The stability analysis shows the existence of a unique stable steady state equilibrium, which is a saddle point. Finally, we show that the monopolist undersupplies product quality as compared to the social optimum, while its investment in the abatement of marginal cost is socially efficient.

Suggested Citation

  • Luca Lambertini & Raimondello Orsini, 2015. "Quality Improvement and Process Innovation in Monopoly: A Dynamic Analysis," Working Paper series 15-12, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:15-12
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    References listed on IDEAS

    as
    1. Ping Lin, 2004. "Process and product R&D by a multiproduct monopolist," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 735-743, October.
    2. Lambertini, Luca & Mantovani, Andrea, 2009. "Process and product innovation by a multiproduct monopolist: A dynamic approach," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 508-518, July.
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    8. L. Colombo & L. Lambertini, 2003. "Dynamic Advertising Under Vertical Product Differentiation," Journal of Optimization Theory and Applications, Springer, vol. 119(2), pages 261-280, November.
    9. Luca Lambertini, 2003. "The monopolist's optimal R&D portfolio," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 561-578, October.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. De Giovanni, Pietro & Zaccour, Georges, 2023. "A survey of dynamic models of product quality," European Journal of Operational Research, Elsevier, vol. 307(3), pages 991-1007.
    2. Lambertini, Luca, 2018. "Coordinating research and development efforts for quality improvement along a supply chain," European Journal of Operational Research, Elsevier, vol. 270(2), pages 599-605.
    3. Ni, Jian & Zhao, Jun & Chu, Lap Keung, 2021. "Supply contracting and process innovation in a dynamic supply chain with information asymmetry," European Journal of Operational Research, Elsevier, vol. 288(2), pages 552-562.
    4. Dongdong Li & Leonard F. S. Wang, 2022. "Does environmental corporate social responsibility (ECSR) promote green product and process innovation?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1439-1447, July.
    5. Dongdong Li & Chenxuan Shang, 2022. "When does environmental innovation crowd out process innovation? A dynamic analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2275-2283, September.
    6. Lambertini, Luca & Orsini, Raimondello & Palestini, Arsen, 2017. "On the instability of the R&D portfolio in a dynamic monopoly. Or, one cannot get two eggs in one basket," International Journal of Production Economics, Elsevier, vol. 193(C), pages 703-712.
    7. Shangwen Liu & Shijie Zhou & Hao Guan & Qian-Ming Zhang & Tong Qin & Jiarong Lin, 2023. "Research on Enterprise R&D Strategy of Product-Service Innovation Guided by Quality Preference," Sustainability, MDPI, vol. 15(11), pages 1-16, June.
    8. Jürgen Antony & Torben Klarl, 2020. "Knowledge Transfer, Transitional Dynamics and Optimal Research & Development Policy in a Dynamic Monopoly Setting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 579-606, November.
    9. Li, Shoude & Ni, Jian, 2016. "A dynamic analysis of investment in process and product innovation with learning-by-doing," Economics Letters, Elsevier, vol. 145(C), pages 104-108.
    10. Fan Zhang & Susu Cheng, 2021. "Behavioral choices in a dynamic duopoly with process innovation and sticky price: Myopia versus farsightedness," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 662-674, April.
    11. Genlong Guo & Shoude Li, 2023. "A dynamic analysis of a monopolist's efforts for improving product quality and process innovation with reference price effects under linear demand," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2328-2345, June.
    12. Li, Shoude & Fu, Tong, 2022. "Abatement technology innovation, worker productivity and firm profitability: A dynamic analysis," Energy Economics, Elsevier, vol. 115(C).
    13. Ni, Jian & Xu, Yue & Shi, Jia & Li, Jiali, 2024. "Product innovation in a supply chain with information asymmetry: Is more private information always worse?," European Journal of Operational Research, Elsevier, vol. 314(1), pages 229-240.
    14. L. Lambertini, 2016. "Coordinating R&D efforts for quality improvement along a supply chain," Working Papers wp1054, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. Li, Shoude & Zhang, Yingxuan, 2023. "Abatement technology innovation and pollution tax design: A dynamic analysis in monopoly," Energy Economics, Elsevier, vol. 119(C).

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