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A Theory of Competitive Industry Dynamics With Innovation and Imitation

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Author Info
Serguey Braguinsky (SUNY Buffalo)
Salavat Gabdrakhmanov (University of Chicago)
Atsushi Ohyama (SUNY Buffalo)

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Abstract

Empirical evidence on industry life-cycle reveals a pattern in which innovation rates remain fairly stable or are perhaps even higher at early stages, while patenting increases sharply as the industry matures. This increase in patenting in later stages is accompanied by net exit and lower rates of output growth and price decline. In this paper, we develop a dynamic model of a competitive industry with innovation and imitation that is consistent with these stylized facts. We derive an equilibrium growth path, along which leading firms invest in increasing the stock of technological knowledge and choose not to prevent imitation by other firms as long as the industry remains relatively small. As the industry expands including new entry, the leaders' optimal amount of investment gradually declines. We show that under some rather general conditions, there would exist a scale of the industry where innovating firms would choose to start preventing free imitation, bringing further expansion of the industry through new entry to a halt and causing net exit. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.03.003
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 10 (2007)
Issue (Month): 4 (October)
Pages: 729-760
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Handle: RePEc:red:issued:05-80

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Related research
Keywords: Competitive innovation; Imitation; Industry life-cycle; Growth; Industrial organization;

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Find related papers by JEL classification:
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

References listed on IDEAS
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  2. Alessandro Nuvolari, 2001. "Collective Invention during the British Industrial Revolution: The Case of the Cornish Pumping Engine," DRUID Working Papers 01-05, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
    Other versions:
  3. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
    Other versions:
  4. Kyriazidou, Ekaterini & Pesendorfer, Martin, 1999. "Viennese Chairs: A Case Study for Modern Industrialization," The Journal of Economic History, Cambridge University Press, vol. 59(01), pages 143-166, March. [Downloadable!]
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  6. Alessandro Nuvolari, 2004. "Collective invention during the British Industrial Revolution: the case of the Cornish pumping engine," Cambridge Journal of Economics, Oxford University Press, vol. 28(3), pages 347-363, May. [Downloadable!] (restricted)
  7. Nuvolari, A., 2004. "Collective invention during the British Industrial Revolution: the case of the Cornish pumping engine," ECIS Working Papers 04.02, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
  8. Boldrin, Michele & Levine, David K., 2004. "Rent-seeking and innovation," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 127-160, January. [Downloadable!] (restricted)
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  9. McGahan, Anita M. & Silverman, Brian S., 2001. "How does innovative activity change as industries mature?," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1141-1160, July. [Downloadable!] (restricted)
  10. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September. [Downloadable!] (restricted)
  11. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  12. Michele Boldrin & David K Levine, 2002. "Perfectly Competitive Innovation," Levine's Working Paper Archive 625018000000000192, UCLA Department of Economics. [Downloadable!]
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  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
    Other versions:
  14. Allen, Robert C., 1983. "Collective invention," Journal of Economic Behavior & Organization, Elsevier, vol. 4(1), pages 1-24, March. [Downloadable!] (restricted)
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