Incremental innovation plays an important role in competitive conduct in high‐tech industries. This paper explores the impact of new model introduction by employing a nested logit specification to investigate the determination of market shares across and within submarkets for a panel of 336 digital cameras. Our results confirm the existence of pronounced life cycle effects and the existence of statistically significant market stealing and cannibalization effects, particularly associated with the introduction of a technologically superior entrant into the model's market segment. The paper reveals significant differences in market outcomes, in both elasticity and response to entry, across submarkets.