Innovation and Competition on a Rugged Technological Landscape

We propose a model of dynamic spatial competition over a rugged technological landscape where product quality is revealed only after market introduction. Firms enter sequentially, deciding whether and how to innovate—either beyond the frontier or within a niche between incumbents. Uncertainty about quality depends on the innovation type and increases with horizontal differentiation. Innovation is irregular, featuring frequent directional shifts and cycles between frontier and niche strategies. Ruggedness in the technological landscape deters innovation, leading to reduced entry, less product differentiation, narrower markets, and more intense competition compared to a world of certainty.