Product Variety and Innovation

Abstract: This research compares the amount of patents obtained by Apple and Samsung with the amount of phones these companies introduce to the market. This data will be combined with existing theories on horizontal and vertical product variety and patent thickets to see if the observed data can be explained by existing models. This research shows that the difference in product variety between the two companies can be explained using a vertical product variety model. A connection between vertical product variety and innovation can be found through the design cost of adding lower quality product types. Companies owning many patents may have to incur less cost in order to design additional products. However these results are not robust and further research is necessary.