Capacity rollover boosts innovation for smaller firms in dynamic markets
The article explores how a company's ability to shift production capacity from an old product to a new one affects its motivation to invest in research and development. In a competitive market, the first company to innovate gains a significant advantage. If the company can transfer some production capacity to the new product, it is more likely to innovate first. However, if the capacity transfer results in significant losses, the smaller company is more motivated to innovate due to reduced competition from the larger company.