Disruptive Technologies and the Emergence of Competition
AbstractWe formalize the phenomenon of disruptive technologies (Christensen, 1997) that initially serve isolated market niches and, as they mature, expand to displace established technologies from mainstream segments. Using a model of horizontal and vertical differentiation with discrete customer segmentation, we show how the threat of disruption varies with the rate of technological advance, the number of firms using each technology, segments sizes, marginal costs, and the ability of firms to price discriminate. We characterize the effect of disruption on prices, market shares, social welfare and innovation incentives. We show that a shift from isolation to disruption lowers prices and increases social welfare, but may either increase or decrease the profits of firms using the new technology. By identifying the drivers and implications of technology competition, we contribute to debates about market definition that are often central in anti-trust deliberations. Moreover, we call into question standard results on the effects of mergers in Cournot models. Prior work finds that, absent efficiency gains, mergers among Cournot competitors lower welfare and are only profitable for the merging firms at high levels of concentration. We show that neither of these results need hold when mergers can alter the boundaries of technology competition.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3994.
Date of creation: Jul 2003
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Find related papers by JEL classification:
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-COM-2003-10-05 (Industrial Competition)
- NEP-INO-2003-10-05 (Innovation)
- NEP-MIC-2003-10-05 (Microeconomics)
- NEP-TID-2003-10-05 (Technology & Industrial Dynamics)
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