Answer
There is still an incentive for firms to decrease their cost of production, as decreasing their cost of production would mean that they would be able to earn super normal profits in the short run, or at least until their competitors manage to decrease their costs of production to a similar level, which would give them more profits to innovate and differentiate themselves from their competitors, which may steer the industry in the direction of a monopolistic competitive one in the long run.
Work Step by Step
There is also an incentive for production innovation, as firms that differentiate their products may draw more customers, and hence gain a greater market share than their competitors. This would also introduce a barrier to entry, where research and development starts to play a more integral role in the purely competitive market, which would move it closer to a monopolistic competitive market or even an oligopoly in the long run, which the firm who initiates this product innovator being possibly the greatest benefactor.
