Imitation to Innovation: Late Movers’ Catch-up Strategy and Technological Leadership Change

Abstract

Little attention has been devoted to the question of how late movers overcome first-mover advantage and catch up with incumbents. We examine the role in catch-up of late movers’ optimal resource allocation between innovation and imitation. Building on Nelson and Winter’s (1982) technology learning and competition model, we develop computational models of late movers’ R&D allocation strategy and technological leadership change. The results suggest that one-sided dependency upon either imitation or innovation deters technological leadership change by late movers in the long run, since the leading firms are moving targets. Furthermore, when a late mover’s technology level is low, the late mover should focus on imitation and build technological capabilities and absorptive capacity; then, as the technological gap decreases, the late mover should allocate more R&D resources to innovation and attempt technological leapfrogging. This transition from imitation to innovation plays a critical role in catch-up. We also test our models including a range of technological environment variables such as appropriability, cumulativeness, and technological opportunity. Our model shows that our original findings are resilient across a wide range of technological environment variables.

Keywords: imitation, innovation, technological catch-up, technological leadership change, technological environment

JEL Classification: O31, O32