Market Leadership With a Sequence of History Dependent Patent Races

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This note extends the results of Vickers [1986] examining the consequences on the evolution of market structure of having payoffs--and thus profits and incentives--which depend on the technological history of the firms. In a simple duopoly model we determine the conditions under which the technological leadership of a firm is strengthened over time (Increasing Dominance) or is progressively eroded by the rival (Catching-Up). This reformulation of Vickers' model can also accommodate incremental innovations, i.e. technological changes which do not allow the innovator to overtake the rival.