Marketing innovation

This paper provides an economic analysis of marketing innovation. A dynamic duopoly model is developed to study two forms of marketing innovation: gamma, which allows a firm to acquire consumer information effectively; and sigma, which reduces consumer transaction costs. The incentives and effects of marketing innovation differ markedly from those of product or process innovations. Although gamma benefits the innovating firm, it hurts some consumers; and, while sigma benefits all consumers, it may or may not benefit the innovating firm. Increased competition intensity reduces the value of gamma but increases the value of sigma. The private incentive is too high for gamma but too low for sigma.