Sequential Product Innovation and Industry Evolution
A certain sequence of innovations in a vertically differentiated good is considered. Two firms are engaged in a series of bidding games to acquire the (infinitely- lived) patents to these. Managerial diseconomies restrict firms to producing a single good which is chosen optimally from the set of patents owned by the firm. Product market equilibrium is Bertrand. Two theorems provide (1) a sufficient condition for the current leader to be overthrown (action-reaction) and (2) a necessary and sufficient condition for persistent dominance. An illustrative example shows that sequences satisfying these conditions can always be constructed. Copyright 1987 by Royal Economic Society.
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Volume (Year): 97 (1987)
Issue (Month): 388a (Supplement)
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