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The Market Evolution and Sales Takeoff of Product Innovations

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Author Info

  • Rajshree Agarwal

    ()
    (Department of Business Administration, University of Illinois at Urbana-Champaign, 350 Wohlers Hall, 1206 S. Sixth Street, Champaign, Illinois 61822)

  • Barry L. Bayus

    ()
    (Kenan-Flagler Business School, University of North Carolina, CB 3490, Chapel Hill, North Carolina 27599)

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    Abstract

    In contrast to the prevailing supply-side explanation that price decreases are the key driver of a sales takeoff, we argue that outward shifting supply and demand curves lead to market takeoff. Our fundamental idea is that sales in new markets are initially low because the first commercialized forms of new innovations are primitive. Then, as new firms enter, actual and perceived product quality improves (and prices possibly drop), which leads to a takeoff in sales. To provide empirical evidence for this explanation, we explore the relationship between takeoff times, price decreases, and firm entry for a sample of consumer and industrial product innovations commercialized in the United States over the past 150 years. Based on a proportional hazards analysis of takeoff times, we find that new firm entry dominates other factors in explaining observed sales takeoff times. We interpret these results as supporting the idea that demand shifts during the early evolution of a new market due to nonprice factors is the key driver of a sales takeoff.

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    File URL: http://dx.doi.org/10.1287/mnsc.48.8.1024.167
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 48 (2002)
    Issue (Month): 8 (August)
    Pages: 1024-1041

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    Handle: RePEc:inm:ormnsc:v:48:y:2002:i:8:p:1024-1041

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    Related research

    Keywords: new product development; firm entry; enterpreneurship;

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    Cited by:
    1. Sriwannawit , Pranpreya & Sandström, Ulf, 2013. "Review of Diffusion Research," INDEK Working Paper Series 2013/1, Department of Industrial Economics and Management, Royal Institute of Technology.
    2. Grajek, Michał & Kretschmer, Tobias, 2012. "Identifying critical mass in the global cellular telephony market," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 496-507.
    3. Mustar, Philippe & Renault, Marie & Colombo, Massimo G. & Piva, Evila & Fontes, Margarida & Lockett, Andy & Wright, Mike & Clarysse, Bart & Moray, Nathalie, 2006. "Conceptualising the heterogeneity of research-based spin-offs: A multi-dimensional taxonomy," Research Policy, Elsevier, vol. 35(2), pages 289-308, March.
    4. Vogt-Schilb, Adrien & Hallegatte, Stephane, 2011. "When starting with the most expensive option makes sense : use and misuse of marginal abatement cost curves," Policy Research Working Paper Series 5803, The World Bank.
    5. Deleersnyder, B. & Dekimpe, M.G. & Sarvary, M. & Parker, P.M., 2003. "Weathering Tight Economic Times: The Sales Evolution Of Consumer Durables Over The Business Cycle," ERIM Report Series Research in Management ERS-2003-046-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    6. Vogt-Schilb, Adrien & Hallegatte, Stéphane, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Energy Policy, Elsevier, vol. 66(C), pages 645-653.
    7. Laborda, Leopoldo & Guasch, Jose Luis & Sotelsek, Daniel, 2011. "Entrepreneurship capital and technical efficiency : the role of new business / firms as a conduit of knowledge spillovers," Policy Research Working Paper Series 5739, The World Bank.
    8. Marc Fischer & Peter Leeflang & Peter Verhoef, 2010. "Drivers of peak sales for pharmaceutical brands," Quantitative Marketing and Economics, Springer, vol. 8(4), pages 429-460, December.
    9. Theoharakis, Vasilis & Vakratsas, Demetrios & Wong, Veronica, 2007. "Market-level information and the diffusion of competing technologies: An exploratory analysis of the LAN industry," Research Policy, Elsevier, vol. 36(5), pages 742-757, June.
    10. Towhidul Islam & Nigel Meade, 2011. "Detecting the impact of market factors on sales takeoff times of analog cellular telephones," Marketing Letters, Springer, vol. 22(2), pages 197-212, June.
    11. Delre, S.A. & Jager, W. & Bijmolt, T.H.A. & Janssen, M.A., 2007. "Targeting and timing promotional activities: An agent-based model for the takeoff of new products," Journal of Business Research, Elsevier, vol. 60(8), pages 826-835, August.
    12. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "Marginal abatement cost curves and the optimal timing of mitigation measures," CIRED Working Papers hal-00916328, HAL.
    13. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "Marginal abatement cost curves and the optimal timing of mitigation measures," Working Papers hal-00916328, HAL.
    14. Alperovych, Yan & Hübner, Georges, 2011. "Explaining returns on venture capital backed companies: Evidence from Belgium," Research in International Business and Finance, Elsevier, vol. 25(3), pages 277-295, September.
    15. Lee, Gwendolyn K., 2009. "Understanding the timing of 'fast-second' entry and the relevance of capabilities in invention vs. commercialization," Research Policy, Elsevier, vol. 38(1), pages 86-95, February.

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