Optimal response to a next generation new product introduction: to imitate or to leapfrog?

In this paper, we study the choice of technology levels and timing of the introduction of new technologies in a market in which customer sophistication increases over time. Faced with the introduction of a new generation product, a firm can either imitate or leapfrog it. If the new product is introduced optimally, we show that the optimal response is to imitate it. This is because the technology leader's best strategy is to set a technology level that makes imitation the best response. We also derive decision rules for the timing of introduction of new technologies. Copyright © 2005 John Wiley & Sons, Ltd.