# The choice between product and logistic innovation in a spatial model with income distribution

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## Abstract

We consider the strategic choice between product and logistic innovation in a spatial framework where consumers are distributed across a linear city and have different incomes depending on their location. Equilibria depend on the relative efficiency of product and logistic innovation and on the level of income inequality. In a single-plant duopoly, multiple equilibria where firms differentiate their strategy may arise. In particular, we show that, if income inequality is sufficiently low, the firm located close to poor residents might choose to increase quality (product innovation) whereas the rival might choose to reduce transportation costs (logistic innovation). We also consider a multiplant monopoly framework and a joint-venture set-up, finding the conditions for different innovation equilibria to arise. Finally, we find that a social planner should mimic the behaviour of the multi-plant monopolist.

## Keywords

Logistic innovation Product innovation Spatial model Income distribution## JEL Classification

L13 R40## Notes

### Compliance with ethical standards

### Conflict of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.

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