Research On Decision Making Of Product Innovation For Firms Under Vertical Differentiation

Technology innovation is an important force to promote the development of a country or a nation.Facing the great opportunities and challenges of the new round of technical change and industrial revolution in the world,China has put forward to accelerate the implementation of the strategy of innovation driven development.Generally speaking,product innovation is the core of technology innovation because to solve the problem of "making what" is the most important for firms.Through product innovation firms can produce products that satisfy consumers,expand their market share,create new business opportunities,improve the added value of their products,enhance the market competitiveness and ultimately increase their profits.All of these provide a solid micro foundation for the transformation and upgrading of the entire economy.But in the process of product innovation,firms may be affected by many factors.Therefore,in order to position itself in the product innovation state scientifically,it is needed to analyze the product innovation strategy under different conditions.Through the research on decision making of product innovation,on the one hand,in accordance with their overall competitive strategy,firms can take effective strategy for product innovation by understanding of their own strength in order to promote the orderly development of product innovation and get the maximum profits.On the other hand,it is beneficial for the government to grasp firms' behavior rules in the process of product innovation to provide theoretical basis for formulating effective economic policies.Therefore,it has important theoretical and practical significance to study the strategy of product innovation.Based on vertical product differentiation model,this paper focuses on the theoretical research of product innovation strategy under different conditions.In order to avoid empty and comprehensive exposition and make the research more innovative,limited to vertical differentiation,this paper selects specific issues closely related to product innovation and launches in-depth study.Specifically,this paper includes the following main contents:First,firms choose the sequential innovation strategy with vertical product differentiation.The second chapter investigates the quality selection strategy of duopoly in two sequential games where the leading firm enters the market with different product quality,gets the feasible intervals of product differentiation at game equilibrium,analyses the change of social welfare,discusses the market mechanism which is preferred by the government as well as the setting of patent height.Second,the influence of technology gap on product innovation strategy is investigated.Measuring technology gap by the asymmetry of the fixed quality improvement costs across the firms,the third chapter respectively discusses the change of firms' decision variables,consumer surplus and social welfare at game equilibrium,compares the conclusions of different types of competition and clarifies the theoretical and practical significance of the relevant results.Third,the relationship between process innovation by cost reductions and vertical product innovation by improving product quality is investigated to analyze the interaction mechanism between these two kinds of innovation in the dynamic game model of duopoly under variable quality cost and fixed quality cost.Fourth,the influence of the government's environmental policy on firms' innovation strategy is studied based on the green market.With the increased consumer awareness of environmental protection,green consumers tend to buy higher environmental quality at a higher price.Different from the traditional environmental policy(such as pollution tax,ad valorem tax,the minimum environmental quality standards,etc.),the fifth and sixth chapter of this paper put forward R&D and consumption policies creatively in the vertical differentiation model in order to investigate the impact of environmental policy on firms' innovation strategy.The innovations of this paper are mainly manifested in:(1)The leading firm's monopoly profit and both firms' continuous revenue stream in the stage of monopoly and duopoly are considered explicitly in the sequential product innovation model and expand the theoretical research of this direction.Moreover,the government tends to choose the low quality firm as a leader in vertical differentiation market,which provides a theoretical basis for the patent height setting.(2)Measuring technology gap by the asymmetry of the fixed quality costs across the firms,this paper discusses the change of firms' decision variables,consumer surplus and social welfare for the first time in different types of competition at game equilibrium and compares the conclusions of two types of competition.(3)The research of the relationship between process innovation and product innovation is extended to the vertical differentiation model with Cournot competition.First,the conditions of game equilibrium and the adoption decision of process innovation by the duopoly are discussed with variable quality cost.Then,limited to the symmetry of marginal cost,the game equilibrium is analyzed with fixed quality cost.(4)The R&D policy about product innovation which is introduced into the green market enriches the environmental policy for the government.Through the differentiated implementation and the undifferentiated implementation,the R&D policy is divided into two categories and a total of four cases.The optimal environmental policy is specified for the government by comparing the changes of variables with R&D policy at game equilibrium.(5)Firms carry out R&D and product innovation with fixed quality costs as the sunk costs.This paper expands the effective intervention measures for the government by introducing consumption policy in the product sales stage which includes equi-proportional implementation and differentiated implementation of consumption subsidies and consumption tax.The innovation of consumption policy is directly reflected in the changes of consumers' utility function,which reduce the brown product demand and is conducive to the control of pollution emissions.