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From Superminis to Supercomputers: Estimating Surplus in the Computing Market

In: The Economics of New Goods


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  • Shane M. Greenstein


Innovation was rampant in the computer industry during the late 1960s and the 1970s. Did innovation vastly extend the capabilities of computers or simply reduce the costs of doing the same thing? This question goes to the heart of whether the rate of decline in 'constant-quality' computing prices incorrectly identifies the sources of improvement and benefits from technological change. This paper argues that innovation freed computers of technical constraints to providing new services, manifesting many new capabilities in systems with larger capacity. Both anecdotal and quantitative evidence suggest that many buyers adopted new systems to get access to these new capabilities, not solely to take advantage of lower prices. The analysis divides itself into several related questions. First, what innovations in this period are associated with extensions of capabilities? Second, do buyers adopt products that embody extensions of capabilities? Third, how does a measurement framework represent that action? Are extensions embodied only in increases in capacity or are they embodied in other measurable features of a computer system as well?

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This chapter was published in:

  • Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6071.

    Handle: RePEc:nbr:nberch:6071

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    Cited by:
    1. John Van Reenen, 2004. "Is there a market for work group servers? Evaluating market level demand elasticities using micro and macro models," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 773, London School of Economics and Political Science, LSE Library.
    2. Roberto Fontana, 2003. "Technological disequilibrium: measuring technical change in fast growing industries: the case of local area network equipement," KITeS Working Papers, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy 145, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2003.
    3. Fershtman, C. & Gandal, N., 1995. "The Effect of the Arab Boycott on Israel: The Automobile Market," Papers, Tel Aviv 39-95, Tel Aviv.
    4. Jürgen Bitzer, 1997. "The Computer Industry in East and West: Do Eastern European Countries Need a Specific Science and Technology Policy?," Discussion Papers of DIW Berlin 148, DIW Berlin, German Institute for Economic Research.
    5. Kim, Donghun, 2004. "Estimation of the Effects of New Brands on Incumbents' Profits and Consumer Welfare: The U.S. Processed Cheese Market Case," Research Reports, University of Connecticut, Food Marketing Policy Center 25192, University of Connecticut, Food Marketing Policy Center.
    6. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 713-744, June.
    7. Matthew Gentzkow, 2006. "Valuing New Goods in a Model with Complementarities: Online Newspapers," NBER Working Papers 12562, National Bureau of Economic Research, Inc.
    8. Donghun Kim, 2004. "Estimation of the Effects of New Brands on Incumbents’ Profits and Consumer Welfare: The U.S. Processed Cheese Market Case," Review of Industrial Organization, Springer, Springer, vol. 25(3), pages 275-293, 09.
    9. Mitsuru Sunada, 2005. "Welfare effects of quality change and new products in the Japanese mobile telecommunications market: 1995-2001," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(8), pages 715-733.


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