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Welfare Implications of User Innovation

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Author Info
Henkel, Joachim
von Hippel, Eric

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Abstract

The literature on new goods and social welfare generally assumes that manufacturers develop innovations. But innovation by users has been found to also be an important part of innovative activity in the economy. In this Paper we explore the impact of users as a source of innovation on product diversity, innovation, and welfare. We examine the impact of user innovation on inefficiencies that bias the provision of new goods, and find that most are either alleviated or non-existent for user innovation. There are three major reasons for this. First, user innovations tend to complement manufacturer innovations, filling small niches of high need left open by commercial sellers. Second, user innovation helps to reduce information asymmetries between manufacturers and users. Third, user innovations are more likely to be freely revealed than manufacturer innovations. We conclude that, compared to a counterfactual world without such innovation, social welfare is most likely to be increased by the presence of user innovation. We derive implications for policy-makers and managers.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4063.

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Date of creation: Sep 2003
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Handle: RePEc:cpr:ceprdp:4063

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Related research
Keywords: inefficiencies; product diversity; social welfare; user innovation;

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Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pier Patrucco, 2008. "The economics of collective knowledge and technological communication," The Journal of Technology Transfer, Springer, vol. 33(6), pages 579-599, December. [Downloadable!] (restricted)
  2. Lars Bo Jeppesen, . "Profiting from innovative user communities: How firms organize the production of user modifications in the computer games industry," IVS/CBS Working Papers 2004-03, Department of Industrial Economics and Strategy, Copenhagen Business School. [Downloadable!]
  3. Eric Brousseau & Thierry Penard, 2007. "The Economics of Digital Business Models: A Framework for Analyzing the Economics of Platforms," Review of Network Economics, Concept Economics, vol. 6(2), pages 81-114, June. [Downloadable!]
  4. Stephen M. Maurer & Suzanne Scotchmer, 2006. "Open Source Software: The New Intellectual Property Paradigm," NBER Working Papers 12148, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Sánchez González, Gloria & González Álvarez, Nuria, 2007. "Desarrollo de innovaciones cooperando con clientes: ¿Cuándo es conveniente?," Documentos de Trabajo "Nuevas Tendencias en Dirección de Empresas". Working Papers "New Trends on Business Administration". 2007-18, Interuniversitary Doctorate Program "New Trends on Business Administration", Universities of Valladolid, Burgos and Salamanca (Spain). Programa de Doctorado Interuniversitario "Nuevas Tendencias en Di. [Downloadable!]
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