Innovation and Industry Bifurcation: the Evolution of R&D Strategy

Abstract

R&D investment can bifurcate industries into groups following innovative and imitative strategies. To examine conditions for strategic bifurcation over time, we develop a model of industry evolution, including industry entry and exit processes, as well as a firm growth process. Growth results from adaptive search over a probabilistic fitness landscape with stochastic attractors. Computer simulation experiments link the strategic bifurcation of industries to landscape features, industry exit rates and strategic inertia. The model implies that mobility barriers can arise from evolutionary and environmental sources independently of firms' defensive actions.