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Incremental product innovation is a critically important competitive factor in established industries. Firms in the cardiac pacemaker industry often benefit by bringing incremental innovations to market even though the new products may cannibalize the sales of existing profitable products. The more often an industry incumbent was among the first to introduce important incremental product innovations the greater its market share in the industry, while adopting innovations that had been introduced by competitors had a small positive relationship with greater market share. The greater the number of competitors that introduced similar products, the greater the market share of firms that were first to market. Greater market share, in turn, reduced the likelihood of business dissolution, while introducing important incremental innovations provided little or no reduction in the likelihood of business dissolution net of the effects of the market share that the firm achieved. The results apply most directly to industries in which buyers incur moderate switching costs.
Banbury et al. (Sun,) studied this question.