To Collaborate or Not: Product Upgrading Strategy in a Competitive Duopoly Market
研究在双头垄断市场中，现有企业与新进入者是否合作进行产品升级的权衡：合作可分担创新投资但导致产品差异化降低，发现双方均可从更高创新成本中获益。
Releasing an upgraded version of a product is a common tactic that firms use to maintain competitiveness. However, in light of the significant research and development investment required to upgrade products, a new industry trend has emerged in which incumbents collaborate with market entrants to innovate products. At the same time, such collaboration may lead customers to think that the upgraded products are more similar than those innovated without collaboration. Consequently, we consider the following tradeoff: collaboration allows firms to share the innovation investment, but leads to less differentiated products. Specifically, we consider a two-period model where the incumbent is a monopoly during the first period. This incumbent and a market entrant decide whether or not to collaborate to innovate their products, and the two firms sell their products during the second period. We find that both firms can benefit from a higher innovation cost. Moreover, the market entrant can be better off when the products become less differentiated due to collaboration, or when customers are impatient to buy in the second period. Finally, we find customers can be worse off when there is a lower innovation cost or more differentiated products.