Critically discuss the role of the probability of entry on the relative incentives to innovate in a patent race between an incumbent and entrant.

Incumbents VS new Entrants By investing in R&D activities the incumbent could win the patent race, gain monopoly profits πm and remain the leader on the market. There is a probability ρ that the entrant does not invest in R&D if both firms innovate, they end up in a duopoly with profits πd. Incremental innovation: entrant threatens an incumbent and creates competition to obtain an incremental innovation protected by patent. And then firms choose whether they want to innovate or not. Profit from a duopoly is smaller from a monopoly/ Actually, it is smaller WATCH THE FORMULAS FOR INCENTIVE TO INNOVATE