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Competing incremental and breakthrough innovation in a model of product evolution

Author

Listed:
  • Colin Davis

    (Doshisha University)

  • Yasunobu Tomoda

    (Kobe City University of Foreign Studies)

Abstract

This paper develops a growth model in which product cycles arise endogenously from investment in incremental and breakthrough innovations. Incumbent firms invest in incremental technology improvements with the aim of reducing production costs. Market entrants develop breakthrough product designs in order to capture the market from vintage product lines. The competing objectives of the two types of innovation generate product cycles within an environment of creative destruction, as new products displace old and are then manufactured using production technologies that are continuously refined. Investigating the relationship between innovation incentives and the average length of product cycles, we characterized three stable patterns of product evolution: incremental innovation alone, breakthrough innovation alone, and product cycles with both types of innovation. Numerical examples suggest that when the market exhibits stable product cycles, subsidies to either type of innovation raise the rate of economic growth and improve welfare.

Suggested Citation

  • Colin Davis & Yasunobu Tomoda, 2018. "Competing incremental and breakthrough innovation in a model of product evolution," Journal of Economics, Springer, vol. 123(3), pages 225-247, April.
    • Handle: RePEc:kap:jeczfn:v:123:y:2018:i:3:d:10.1007_s00712-017-0568-y
    DOI: 10.1007/s00712-017-0568-y
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    2. Yoon, Jungsub & Lee, Jeong-Dong & Hwang, Seogwon, 2022. "Episodic change: A new approach to identifying industrial transition," Technovation, Elsevier, vol. 115(C).
    3. Mohamed Shawesh & Kolawole Iyiola & Ahmad Alzubi, 2024. "Innovation Eco-Embeddedness, Breakthrough Innovation, and Performance of Non-Core Firms: A Mediation Moderation Study," Sustainability, MDPI, vol. 16(20), pages 1-24, October.
    4. Bingqiang Li & Lei Huang, 2019. "The Effect of Incremental Innovation and Disruptive Innovation on the Sustainable Development of Manufacturing in China," SAGE Open, , vol. 9(1), pages 21582440198, February.
    5. Liu, Jingling & Chen, Yanying & Liang, Feng Helen, 2023. "The effects of digital economy on breakthrough innovations: Evidence from Chinese listed companies," Technological Forecasting and Social Change, Elsevier, vol. 196(C).

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