With the method of dynamics duopoly game theory, the effect of firms’ innovation ability on the choice between product and process innovation is studied. The concept of cost coefficient of product innovation is introduced, and the criterion equation for the innovation type is derived. It is concluded that the more the product innovation ability, the more the possibility for the firms to carry out the product innovation in both the Bertrand and the Cournot competitions. With the decrease of the product innovation ability, for the highquality firms, Cournot competitor tends to select the process innovation earlier than the Bertrand competitor. But for the lowquality firms, the Bertrand competitor would select the process innovation firstly.