Duopoly innovation with technology diffusion

This article captures the effects of technology diffusion on innovation under duopoly competition. With the game theory approach, some interesting results are achieved. First, technology diffusion stimulates innovation and firms launch innovation to share more market size. Second, firms under unilateral innovation launch less innovation than that under bilateral innovation. Finally, neither firms' innovation constitutes a Nash equilibrium and subsidy may transfer this equilibrium to a new equilibrium that both firms innovate.