American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Innovation and Competition on a Rugged Technological Landscape
American Economic Journal: Microeconomics
(pp. 72–114)
Abstract
We integrate innovation into Hotelling's classic model of spatial competition. Potential entrants arrive sequentially and choose whether and where to innovate. They can innovate beyond the frontier, expanding the boundary of the market, or within a niche between incumbent products. Product quality is learned only after introduction, and uncertainty increases with novelty. Innovation on a rugged technological landscape is irregular, with frequent changes in direction and cycles between frontier and niche innovation. The ruggedness of the technological landscape itself deters innovation, generating fewer entrants, less product differentiation, narrower markets, and more intense competition than under certainty.Citation
Callander, Steven, Nicolas S. Lambert, and Niko Matouschek. 2026. "Innovation and Competition on a Rugged Technological Landscape." American Economic Journal: Microeconomics 18 (4): 72–114. DOI: 10.1257/mic.20230266Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D21 Firm Behavior: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 Firm Performance: Size, Diversification, and Scope
- O31 Innovation and Invention: Processes and Incentives