Product innovation, diffusion and endogenous growth

We develop a model of Schumpeterian growth featuring stochastic diffusion process where the rate commercial success product innovations is endogenously determined by advertising intensity. consider both informative advertising, which young technological leaders use to increase probability diffusion, and defensive incumbents prevent competing products. Economic depends positively on arrival into mainstream market. show that R&D subsidies shift relative investment incentives towards innovation away from diffusion. This creates an inverted U-shaped relationship between economic welfare as arrive more frequently, but fewer commercialize successfully. find growth, when purely informative. In presence lead socially wasteful increases in resources devoted without large reducing welfare.