This section generalizes the analysis of stationary equilibria by allowing
research firms to choose not only the frequency but also the size of innovations.
It shows that under laissez-faire, innovations will be too small if they are drastic.
In the nondrastic case, the tendency to make innovations too small is at least
partly mitigated by the incentive for innovators to move away from their
competitive fringe, which they can do by increasing the size of innovations.