The Research On The Firms’ Competitive Strategy Based On Disruptive Innovation Encroachment Route

This paper analyzes a special type of technology evolution, referred to in the literature as disruptive innovation vs. sustaining innovation. Disruptive innovation encroachment route is classified as low-end encroachment and high-end encroachment, and then we study firms’ competitive strategy under different encroachment routes. Since disruptive technology traded off core-function performance valued by main-stream customers to achieve simplicity and cost-saving, it’s believed to be inferior to the "old" products based on sustaining technology. Accordingly, there are three market outcomes: distinct offerings, semi-duopoly and duopoly. While customers’ valuation on disruptive products is vastly higher than the one on sustaining products under high-end encroachment, the incumbent will choose to offer only disruptive technology at this time.We consider a firms’competition model with an established firm and an entrant firm that have heterogeneous product-offering capabilities:the established firm can offer either or both types of products, while the entrant firm can only offer new products. Firms make investment capacity, pricing, and quantity decisions to maximize their profits. At last, the paper emphasizes firms’ competitive strategy through two cases:own brand automobiles and digital cameras.