The step size between innovations Suppose that the cost of research is a function, Z(q), of the step size, q, between innovations. (We continue to assume that q is known with certainty.) Assume that the function Z(·) satisfies Z' > 0 and Z"> 0.
a. What value of q will be determined in equilibrium-say, in the model in which the leader's cost advantage in R&D is sufficiently great to neglect the potential research of outsiders?
b. Under what conditions is the previous answer consistent with the assumption that the leader can neglect the potential research by outsiders?