Sincerest Form of Flattery? Product Innovation and Imitation in the European Automobile Industry

Jeff Thurk

Journal of Industrial Economics, 2018, vol. 66, issue 4, 816-865

Abstract: I study the impact of imitation on the returns to technological innovation when products are differentiated. Using data that capture Volkswagen’s introduction of the TDI diesel engine and the technology’s imitation by rival European firms, I estimate a discrete choice, oligopoly model of horizontally differentiated products. Imitation benefited consumers by increasing product variety and reducing prices but also limited Volkswagen to 14% of potential profits from the TDI. Volkswagen’s ability to differentiate its diesel models made the TDI a worthwhile investment nonetheless. This indicates firms can mitigate imitation risk by bundling easy‐to‐copy technological advancements with difficult‐to‐copy product characteristics including brand.

Date: 2018
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