A Multi--Product Framework of Innovation and Imitation

Abstract

How does product expansion via imitation  promote innovation?  To answer this question,  I develop a quantitative multi--product framework of innovation and imitation. The model enables firms to innovate or imitate in multiple technology trajectories to expand their knowledge base. Subsequently, the knowledge base serves as an input for new innovation or imitation. Calibrated by Chinese data, the results suggest that most of the private knowledge in individual firms is generated through imitation, due to the non-rivalry of knowledge, and contributes significantly to future innovation. Unlike in single--product models, larger firms with greater amount of knowledge capital exhibit higher efficiency in product expansion either through imitation or innovation. Therefore, enhanced knowledge spillover results in improved inequality.

Keywords: imitation, knowledge diffusion, innovation, product expansion