Working Paper: NBER ID: w4782
Authors: Jeremy C. Stein
Abstract: This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: 1) product quality or cost, where one firm's innovation ultimately spills over to other firms; and 2) distribution costs, where there are no spillovers across firms and where incumbent firms' existing customer bases give them a competitive advantage over would- be entrants. Customer bases have two important consequences: 1) they can in some circumstances dramatically reduce the long-run average level of innovation; 2) they lead to endogenous bunching, or waves, in innovative activity.
Keywords: Innovation; Customer Bases; Creative Destruction; Market Dynamics
JEL Codes: L1; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Customer base (D26) | Competitive advantage (L19) |
| Competitive advantage (L19) | Level of innovation (O35) |
| Customer base (D26) | Level of innovation (O35) |
| Displacement (J63) | Access to market for new entrants (L17) |
| Access to market for new entrants (L17) | Innovation (O35) |
| Customer base (D26) | Timing of innovations (O39) |