Degree of Innovativeness and Market Structure: A Model

Daniela Grieco

The IUP Journal of Managerial Economics, 2007, vol. V, issue 2, 7-27

Abstract: A stylized fact shows that firms rarely seek for radical breakthroughs and more frequently invest in small improvements of the existing technology. This paper proposes a model that compares firms’ value when firms can invest in strategies implying different degrees of innovativeness. The model shows that incremental strategies emerge as a dominant strategy for oligopolists when imitation of incremental innovation is sufficiently slow and firms are not too asymmetric in their access to knowledge. If these conditions are not respected, the model exhibits an additional symmetric Nash equilibrium where firms select radical innovations.

Date: 2007
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