Abstract for: Through the Red Queen effect

One of the important issues in the field of strategic management is to know the factors that explain why companies operating within the same sector have different performances. The evolutionary theory affirms that innovation could justify why certain firms remain in a prominent position in the market ensuring high yields. A scenario that explains the evolution of innovation among rivals is known as the Red Queen effect. In this scenario, an action carried out by a firm influences its performance and promote innovation among rival firms, affecting negatively the performance of the first. This paper is aimed to construct a system dynamic model capable of explaining the survival of two firms affected by the effect. To contrast the hypothesis on which the model is constructed, the innovation paths of two rival firms in a specific industry are examined. A simulation exercise tests the capacity of the model to replicate the creation of new products.