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Technological Innovation and Market Turbulence: The Dot-com Experience

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  • Zhu Wang

    (Federal Reserve Bank of Kansas City)

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Abstract

This paper explains market turbulence, such as the recent dot-com boom/bust cycle, as equilibrium industry dynamics driven by the synergy between new and existing technologies. When a major technological innovation arrives, a wave of new firms implement the innovation and enter the market. However, if the innovation complements existing technology, some new entrants later will be forced out as more and more incumbent firms succeed in adopting the innovation. It is argued that the diffusion of internet technology among traditional brick-and-mortar firms was indeed the driving force behind the rise and fall of dot-coms as well as the sustained growth of e-commerce. Systematic empirical evidence from retail and banking industries supports the theoretical findings. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 10 (2007)
Issue (Month): 1 (January)
Pages: 78-105

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Handle: RePEc:red:issued:06-47

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Related research

Keywords: Technology diffusion; Industry dynamics; Shakeout;

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  4. Richard J. Sullivan & Zhu Wang, 2005. "Internet banking: an exploration in technology diffusion and impact," Payments System Research Working Paper, Federal Reserve Bank of Kansas City PSR WP 05-05, Federal Reserve Bank of Kansas City.
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  12. Gompers, Paul & Kovner, Anna & Lerner, Josh & Scharfstein, David, 2008. "Venture capital investment cycles: The impact of public markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 87(1), pages 1-23, January.
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Cited by:
  1. Richard J. Sullivan & Zhu Wang, 2005. "Internet banking: an exploration in technology diffusion and impact," Payments System Research Working Paper, Federal Reserve Bank of Kansas City PSR WP 05-05, Federal Reserve Bank of Kansas City.
  2. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.
  3. Zhu Wang & Fumiko Hayashi, 2011. "Product Innovation and Network Survival in the U.S. ATM and Debit Card Industry," 2011 Meeting Papers, Society for Economic Dynamics 725, Society for Economic Dynamics.
  4. Fumiko Hayashi & Zhu Wang, 2009. "Product innovation and network survival in the U.S. ATM and debit card network industry," Research Working Paper, Federal Reserve Bank of Kansas City RWP 08-14, Federal Reserve Bank of Kansas City.

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