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THE ECONOMICS OF INNOVATION An introductions TOPICS IN THIS LECTURE ?Product choice by the producer ?Innovative pricing ?Intellectual property Product choice by the producer: producer choice of product quality Flexible manufacturing and product variety: How many models to produce? How many models to produce? (Flexible manufacturing process) Measuring product petitiveness: Data Envelopment Analysis (DEA) Definition of innovative pricing ? Innovative pricing: the activity of creating new pricing schemes or tariff structures. ? Pure innovative pricing is where such new pricing schemes are introduced with no (perceptible) change to the product or service. ? The traditional term in economics for this phenomenon is price discrimination: charging different prices to different customers for the same product or service PROBLEMS WITH PRICE DISCRIMINATION 1. Legal issue: price discrimination acts against the consumer interest, and it may be illegal. 2. Philosophical issue: are the customers really charged different prices for the same product or service in a price discrimination scheme? 3. Ethical issue: is price discrimination ethical? ? Kantian perspective: fundamental principle ? Utilitarian perspective: greatest happiness (utility) CONDITIONS FOR PRICE DISCRIMINATION 1. There must be different willingnesstopay (or price elasticity) in different markets 2. The sorting devices used in price discrimination must be successful at sorting consumers into the required dif