Endogenous Specialization of Heterogeneous Innovative Activities of Firms Under the Technological Spillovers

Abstract

This paper proposes a reduced form model of dynamic duopoly in the context of heterogeneous innovations framework. Two agents invest into product and process innovations simultaneously. Every newly introduced product has its own dimension of process-improving innovations and there is a continuum of possible new products. In the area of process innovations the costless imitation effect is modelled while in the area of product innovations agents are cooperating with each other. As a result the specialization of innovative activity is observed. This specialization arises from strategic interactions of agents in both fields of innovative activity and is endogenously defined from the dynamics of the model.

Keywords: innovations, dynamics, multiproduct, technology spillovers, distributed control, differential games

JEL Classification: C2, L0, O31