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Demand, innovation, and the dynamics of market structure: The role of experimental users and diverse preferences

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Author Info

  • Franco Malerba

    ()

  • Richard Nelson
  • Luigi Orsenigo
  • Sidney Winter

Abstract

The history of a number of industries is marked by a succession of eras, associated with different dominant technologies. Within any era, industry concentration tends to grow. Particular eras are broken by the introduction of a new technology which, while initially inferior to the established one in the prominent uses, has the potential to become competitive. In many cases new entrants survive and grow, and the large established firms do not make the transition. In other cases the established firms are able to switch over effectively, and compete in the new era. This paper explores a model which generates this pattern and has focussed on the characteristics of the demand. We argue that the ability of the new firms exploring the new technology to survive long enough to get that technology effectively launched depends on the existence of fringe markets which the old technology does not serve well, or experimental users, or both. Established firms initially have little incentive to adopt the new technology, which initially is inferior to the technology they have mastered. New firms generally cannot survive in head-to-head conflict with established firms on the market well served by the latter. The new firms need to find a market that keeps them alive long enough so that they can develop the new technology to a point where it is competitive on the main market. Niche markets, or experimental users, can provide that space.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Springer in its journal Journal of Evolutionary Economics.

Volume (Year): 17 (2007)
Issue (Month): 4 (August)
Pages: 371-399

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Handle: RePEc:spr:joevec:v:17:y:2007:i:4:p:371-399

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Related research

Keywords: O30; L10; L60;

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References

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  1. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
  2. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, vol. 5(3-4), pages 287-320.
  3. Malerba, Franco, et al, 1999. "'History-Friendly' Models of Industry Evolution: The Computer Industry," Industrial and Corporate Change, Oxford University Press, vol. 8(1), pages 3-40, March.
  4. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
  5. Christensen, Clayton M. & Rosenbloom, Richard S., 1995. "Explaining the attacker's advantage: Technological paradigms, organizational dynamics, and the value network," Research Policy, Elsevier, vol. 24(2), pages 233-257, March.
  6. Metcalfe, J.S. & James, Andrew & Mina, Andrea, 2005. "Emergent innovation systems and the delivery of clinical services: The case of intra-ocular lenses," Research Policy, Elsevier, vol. 34(9), pages 1283-1304, November.
  7. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
  8. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(394), pages 116-31, March.
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