Innovative activities of an incumbent and a potential entrant: an empirical exploration of the role of uncertainty in product and process innovations

By distinguishing between product and process innovations, we empirically examine how uncertainty affects the innovation activities of incumbents and potential entrants. We find that potential entrants are more innovative than incumbents in both process and product innovations, which supports the patent race model. Furthermore, we find that uncertainty plays a crucial role in hindering an incumbent's incentive for product innovation, but has little impact on the innovation activities of both incumbents and entrants with respect to process innovation. The results suggest that a higher uncertainty in product innovation can raise the incentive for incumbent firms to seek for cooperation with new entrants.