Pricing under innovation
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First author draft
Date
DOI
Authors
Jaumandreu, J.
Lin, Shuheng
Version
OA Version
Citation
J Jaumandreu, Shuheng Lin. "Pricing Under Innovation."
Abstract
We study pricing when firms introduce process and product innovations over
time. We set up a model of endogenous productivity and markup under imperfect
competition and dynamic pricing. We estimate it using output price indices
reported by an unbalanced panel of 2,300 Spanish manufacturing firms during
1990-2006. Markups turn out to be procyclical and change with the introduction
of innovations. Firms use innovation to increase margins, but product innovators
are careful to raise prices on new or improved goods. Process innovations tend to
leave prices unchanged, product innovations tend to raise prices and firms that
introduce both tend to decrease them.