Dominance And Innovation

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Do dominant or less dominant firms innovate more? Theoretically it has been shown that within an asymmetric mixed strategy game of a patent race, the less dominant firm invests more than the dominant firm. But the empirical data on patent races is divided. In this paper, the authors argue that the decisions that concern strategic choice in innovation may be influenced by expected relative returns. The approach, which they call the returns-based beliefs approach, is based upon subjective probabilities. It combines a decision analytic solution concept and Luce's (1959) probabilistic choice model.