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Discrete Innovation, Continuous Improvement, and Competitive Pressure

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Does competitive pressure foster innovation? In addressing this important question, prior studies ignored a distinction between discrete innovation aiming at entirely new technology and continuous improvement consisting of numerous incremental improvements and modifications made upon the existing technology. This paper shows that distinguishing between these two types of innovation will lead to a much richer understanding of the interplay between firm’ incentives to innovate and competitive pressure. In particular, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms’ incentives to conduct continuous improvement, and that an increase in the size of discrete innovation may decrease firms’ incentives to conduct continuous improvement. A unique feature of this paper is its exploration of the model’s real-world relevance and usefulness through field research. Motivated by recent declines in levels of continuous improvement in Japanese manufacturing, we conducted extensive field research at two Japanese manufacturing firms. After presenting our findings, we demonstrate that our model guides us to focus on several key changes taking place at these two firms; discover their interconnectedness; and finally ascertain powerful underlying forces behind each firm’s decision to weaken its investment in traditional continuous improvement activities.

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Paper provided by Department of Economics, Colgate University in its series Working Papers with number 104-27.

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Date of creation: 18 Oct 2007
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Handle: RePEc:cgt:wpaper:104-27

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Keywords: Competitive pressure; continuous improvement; discrete innovation; field research; location model; product substitutability; small group activities; technical progress;

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  1. Stephen Redding, 2002. "Path dependence, endogenous innovation, and growth," LSE Research Online Documents on Economics 208, London School of Economics and Political Science, LSE Library.
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  14. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
  15. Ted O'Donoghue, 1997. "A Patentability Requirement For Sequential Innovation," Discussion Papers 1185, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Howard F. Chang, 1995. "Patent Scope, Antitrust Policy, and Cumulative Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 34-57, Spring.
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  18. Green, J.R. & Scotchmer, S., 1993. "On the Division of Profit in Sequential Innovation," Harvard Institute of Economic Research Working Papers 1638, Harvard - Institute of Economic Research.
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  1. Socio-Economics of Innovation

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