The Technological Innovation Game in Heterogeneous Market

As one of firms' productive factors,technological innovation not only affects firms' productive cost,but also determines their new product development as well as improvement and breakthrough of product quality.In a duopoly market with vertical product differentiation,technological innovation can bring different levels of incentives to firms with different product quality.Especially,when carrying out product innovation,the firms with low product quality might leapfrog through innovation and become the dominant producers with high product quality.