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Imitative Competition and Product Innovation in a Duopoly Model

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  • Pepall, Lynne

Abstract

This paper investigates imitative competition in a two-stage game of strategic product choice in a vertically differentiated market. The innovator chooses its product strategy anticipating the subsequent entry of a rival firm. The rival firm chooses the degree to which it is profitable to differentiate its product from the innovator. It has the second mover advantage that its costs are lower the more closely it copies the innovator's product. But against this advantage is the drawback that the more similar the two products are, the more intense is the price competition between the two firms. The trade-off between imitation and differentiation is affected by the degree of consumer heterogeneity in the market. Consumers differ by income. The relationship between the incentive to imitate and the distribution of income is important, particularly in evaluating the welfare effects of two different policy responses, patent policy and cooperative alliances. Copyright 1997 by The London School of Economics and Political Science

Suggested Citation

  • Pepall, Lynne, 1997. "Imitative Competition and Product Innovation in a Duopoly Model," Economica, London School of Economics and Political Science, vol. 64(254), pages 265-279, May.
    • Handle: RePEc:bla:econom:v:64:y:1997:i:254:p:265-79
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    Cited by:

    1. Eugen Kováč & Krešimir Žigić, 2014. "International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy Versus Free Trade," Economica, London School of Economics and Political Science, vol. 81(323), pages 491-521, July.
    2. Jae Wook Yoo & Richard Reed & Shung Jae Shin & David J. Lemak, 2009. "Strategic Choice and Performance in Late Movers: Influence of the Top Management Team's External Ties," Journal of Management Studies, Wiley Blackwell, vol. 46(2), pages 308-335, March.
    3. Jost, Peter-J., 2014. "How to protect your premium product from low-price competitors: Price, quality, or portfolio adjustment?," International Journal of Research in Marketing, Elsevier, vol. 31(3), pages 253-265.
    4. Pérez-Luño, Ana & Wiklund, Johan & Cabrera, Ramón Valle, 2011. "The dual nature of innovative activity: How entrepreneurial orientation influences innovation generation and adoption," Journal of Business Venturing, Elsevier, vol. 26(5), pages 555-571, September.
    5. Reynald-Alexandre Laurent, 2008. "Product innovation and imitation in a duopoly with differentiation by attributes," Working Papers halshs-00586867, HAL.
    6. Jiong Sun & Laurens G. Debo & Sunder Kekre & Jinhong Xie, 2010. "Component-Based Technology Transfer in the Presence of Potential Imitators," Management Science, INFORMS, vol. 56(3), pages 536-552, March.

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