Study On The Relationship Between Firms’ Production Innovation Ability And Product Innovation As Well As Process Innovation Modes

Technological innovation modes can be divided into product innovation and processinnovation. Process innovation plays an important role in the firm profit improvementthrough cost reduction and product innovation is through the increasement ofdifferenciation and price of product to improve the firm profit. The product quality,technological innovation ability as well as the competitive intensity affect the firm’stechnological innovation modes. The present study has not put the product innovationability into the theory framework about the innovation modes. Besides, it is also lack ofthe systematic research on the effect of product innovation ability to the modes oftechnological innovation of Chinese state-owned firms. In this dissertation, Based on thepresent studies, the impact of firms’ innovation ability as well as the product quality andthe competitive intensity to the choice of product innovation and process innovation isstudied with the method of theory and case study.First with the application of method of duopoly game theory, the concept of productinnovation cost coefficient is introduced and the relationship of firms innovation modes,product quality and technical innovation ability as well as intensity of market competitionis established, the criterion model for the mode of innovation is deduced. Reached thefollowing conclusions: for the highest profit, the stronger the product Innovation ability,the greater the likelihood to choose product innovation in the Bertrand as well as Cournotcompetition for both high quality firms and low quality firms. When product innovationability is down to a certain extent, high quality firms tend to choose product innovation inBertrand competition, and the process innovation in Cournot competition. Low qualityfirms tend to choose process innovation in Bertrand competition and the productinnovation in Cournot competition. When firms product innovation ability is very low,both high quality and low quality firms tend to choose process innovation. In thetheoretical derivation, the equilibrium methods of the static game and dynamic gametheory are used respectively coming to the same overall trend conclusion, only thecriterion of process innovation and product innovation differs. With the method ofequilibrium analysis of the dynamics duopoly game with the output strategy by Stackelberg, the paper analyzed the dynamics duopoly game in the Bertrand competitionwith the price strategy and applied into the vertical differentiation model by Mussa andRosen and compared the equilibrium result with that in the static duopoly marketIn the framework of the above theoretical studies, the Wuhan Iron and SteelCompany and Bao steel are selected as a case of technological innovation modes. therelationship of products quality and technological innovation modes and the intensity ofmarket competition is studied to validate and explain the results of theoretical research. Inthe study, the relative unit cost is used to measure the process innovation, the relative unitrevenue to measure the product innovation, the sales profit rate to measure the intensity ofcompetition, higher sales profit rate standing for the low competitive intensity and thelower sales profit rate standing for the high competitive intensity. The product innovationability is measured with the comprehensive value of product development ability raised byHu (2000). The papar has the following contribution to the research of product innovationand process innovation:(1) in existed research works, the innovation ability has not putinto the theory framework systematically. The paper established the relationship betweenproduct innovation ability and the innovation modes, improving the theory system ofproduct innovation and process innovation.(2) With the method of equilibrium analysis ofthe dynamics duopoly game with the output strategy by Stackelberg, the paper analyzedthe dynamics duopoly game in the Bertrand competition with the price strategy.(3) withthe standard finacial data of unit revenue and unit cost, calculating the yearly-increamentof relative cost and relative revenue to measure the product innovation and processinnovation, which can well explain and validate the theory results and supply a newmeasurement method in the research of product innovation and process innovation.(4) putforth the innovation modes in the condition of product quality、product innovation abilityand the market competitive intensity, and give a suggest of how to select a technologicalinnovation modes which is suitable to the firms themselves.