Degree of innovativeness and market structure: A model

A limited number of business firms engage in disruptive innovative activity. When firms decide among alternative innovative patterns, inertial forces may bias their choices in favour of incremental innovations. 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.