The choice between product and logistic innovation in a spatial model

Stefano Colombo, Luigi Filippini

Research output: Contribution to journalArticle

Abstract

We consider the strategic choice between product and logistic innovation in a spatial framework where consumers are distributed across a linear city and have different incomes depending on their location. Equilibria depend on the relative efficiency of product and logistic innovation and on the level of income inequality. In a single-plant duopoly, multiple equilibria where firms differentiate their strategy may arise. In particular, we show that, if income inequality is sufficiently low, the firm located close to poor residents might choose to increase quality (product innovation) whereas the rival might choose to reduce transportation costs (logistic innovation). We also consider a multiplant monopoly framework and a joint-venture set-up, finding the conditions for different innovation equilibria to arise. Finally, we find that a social planner should mimic the behaviour of the multi-plant monopolist.
Original languageEnglish
Pages (from-to)609-627
Number of pages19
JournalEconomia e Politica Industriale
Publication statusPublished - 2019

Keywords

  • spatial model

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