Disruptive Technologies and the Emergence of Competition
AbstractWe formalize the phenomenon of disruptive technologies that initially serve isolated market niches and, as they mature, alter industry boundaries by displacing established technologies from mainstream segments. Using a model of horizontal and vertical differentiation, we show how the threat of disruption depends on rates of technological advance, how many firms use each technology, relative market segment sizes, and firms' ability to price discriminate. We characterize the effect of disruption on prices, market shares, social welfare, and innovation incentives. We show that the possibility that mergers trigger disruption and thereby alter industry boundaries is important for assessing their impact on social welfare and profits.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 36 (2005)
Issue (Month): 2 (Summer)
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Web page: http://www.rje.org
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