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equilibrium effect that critically changes the dynamic incentives of acquiring new product lines through R&D, and it thus has an indirect effect on firm and economic growth.
The number of active product lines owned by firm f is n = |Jf | ?
Furthermore, firms can choose to advertise on their currently owned product lines in order to increase demand through the extrinsic quality margin.
27As we shall see, the only way for firms to acquire new product lines is through R&D, and therefore the variable n may be
Firms can invest into R&D to generate the possibility of intrinsically improving their own product lines (so-called internal innovation), as well as to creatively build upon the intrinsic quality of those goods that are transferred from other incumbent monopolists through a process of Schumpeterian creative destruction (so-called external innovation).
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