When Innovation Becomes Inefficient: Reexamining Britain's Radio Industry

I examine the factors underpinning the British radio-equipment sector's particularly poor interwar productivity performance relative to the United States. Differences in socio-legal environments were crucial in allowing key players in the British industry to derive higher monopoly rents than their American counterparts. Higher British rents in turn, had the unintended outcome of stimulating innovation around restrictive patents, initiating a path-dependent process of technical change in favor of expensive multifunctional valves. These valves both raised direct production costs and prevented British firms from following the American path of broadening the radio market beyond the household's prime receiver.