Innovation and imitation as an interactive process

This article deals with the problem of the coexistence of innovators and imitators in a competitive market. The study proposes a model of innovation and diffusion of productive knowledge as an interactive process between innovators and imitators under conditions of dynamic uncertainty. The process can be modelled as a Stackelberg game, where the innovator acts as a leader in choosing whether to share knowledge or set up private protection and the imitator as a follower in choosing when becoming active. Under these conditions, activation thresholds are derived for both innovators and imitators. If protection policies are effective, the imitator can be trapped into an inaction region by the innovator. Thus, there will be two regimes without and with diffusion, according to whether the inaction region is enacted or not. Under these conditions, discovery and diffusion appear to be dynamic complements, as a higher speed of activation of innovating firms is favoured by a higher level of imitation and a higher speed of activation of imitating firms is favoured by a higher level of discoveries. In order to explore some of the quantitative implications of these results, the paper also proposes an application of the model to four European countries.