Abstract: Customer base is one of the most important intangible asset of the firms. The stickiness of customer base (i.e., how likely customers will continue to utilize the same product or service) can have a great impact on firms’ incentive of innovation. In industries with large degree of customer stickiness, the gain from innovation is smaller as firms with innovative technology face larger frictions in attracting customers. In the proposed study, we plan to build a theoretical model to illustrate how customer stickiness affects firms’ innovation activities. We predict that industries with large degree of customer stickiness have low level of competitive entry and also low intensity of innovation activities. We also plan to conduct empirical analysis that tests the predictions of our model. We will construct a set of customer stickiness measures based on a comprehensive customer survey data, and then examine the impact of customer stickiness on firms’ innovation activities.