A Strategic Approach to the Product Life Cycle

Abstract

This paper analyzes the steady state open-loop Nash equilibrium of a game in which a Northern monopolist devotes resources to new product development and a Southern planner diverts resources into reverse engineering to learn the technology to produce these. A steady state equilibrium technology gap exists, showing tht a constant technology gap over time may be explained by optimal strategic behavior of decision makers in a product cycle model. Given resource costs, neither the Northern monopolist nor the Southern planner wants to alter the gap. Finally, analysis of comparative steady states shows the importance of strategic versus non-strategic behavior.