Technological Opportunity, Technological Leadership Change, and Latecomers’ R&D Resource Allocation between Innovation and Imitation

Abstract

This study examines when and how latecomers can surpass incumbents in technological capabilities with a focus on the role of technological opportunity. There is disagreement in theoretical prediction and evidence on whether technological opportunity is conducive to technological leadership change. To reconcile this disagreement, we build a computational model of Schumpeterian competition in which incumbents and latecomers compete with innovation and imitation R&D. First, the results suggest that technological opportunity indeed has two opposing effects (i.e., positive and negative) on technological leadership change, and these effects create an inverted-U relationship. When there are few opportunities, leadership change is unlikely to happen because latecomers will rarely achieve a breakthrough. Additionally, abundant opportunities may not be conducive to leadership change either because incumbents move forward faster than latecomers. We further examine why these opposing effects exist by exploring latecomers’ R&D allocation between innovation and imitation. The results highlight that imitation R&D is a necessary condition for latecomers to leverage technological opportunity (i.e., enabling the positive effect of technological opportunity) and overcome their disadvantages in a technologically munificent environment (i.e., mitigating the negative effect of technological opportunity).

Keywords: Schumpeterian competition, Technological opportunity, Technological leadership change, Imitation, Innovation

JEL Classification: O31, O32