Data and Code for: Innovation and Competition on a Rugged Technological Landscape

We propose a model of dynamic spatial competition over a rugged technological landscape in which the quality of a product is learned only after it is introduced to the market. Firms enter the market sequentially, choosing not only whether to innovate but how to innovate. They can innovate beyond the frontier of existing products, outside the scope of the market, or they can innovate in a niche, nestling between incumbent products. The uncertainty about a new product's quality depends on the type of innovation a firm chooses and increases in the degree of horizontal differentiation from existing products. Innovation in this market is irregular with frequent changes of direction and cycles between frontier and niche innovation. We show how the ruggedness of the technological landscape itself deters innovation, generating less entry and product differentiation, narrower markets, and more intense competition than in a world of certainty.