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Concept
Leapfrogging
Summary
Leapfrogging is a concept used in many domains of the economics and business fields, and was originally developed in the area of industrial organization and economic growth. The main idea behind the concept of leapfrogging is that small and incremental innovations lead a dominant firm to stay ahead. However, sometimes, radical innovations will permit new firms to leapfrog the ancient and dominant firm. The phenomenon can occur to firms but also to leadership of countries or cities, where a developing country can skip stages of the path taken by industrial nations, enabling them to catch up sooner, particularly in terms of economic growth.
In the field of industrial organization (IO), the main work on leapfrogging was developed by Fudenberg, Gilbert, Stiglitz and Tirole (1983). In their article, they analyze under which conditions a new entrant can leapfrog an established firm.
That leapfrogging can arise because an established monopolist has a somewhat reduced incentive to innovate because he is earning rents from the old technology. This is somewhat based on Joseph Schumpeter's notion of ‘gales of creative destruction’. The hypothesis proposes that companies holding monopolies based on incumbent technologies have less incentive to innovate than potential rivals, and therefore they eventually lose their technological leadership role when new radical technological innovations are adopted by new firms which are ready to take the risks. When the radical innovations eventually become the new technological paradigm, the newcomer companies leapfrog ahead of the formerly leading firms.
Similarly a country which has leadership can lose its hegemony and be leapfrogged by another country. This has happened in history a few times. In the late eighteenth century, the Netherlands was leapfrogged by the UK, which was the leader during the whole nineteenth century, and in turn the US leapfrogged the UK, and became the hegemonic power of the 20th century.
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Official source
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