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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4063.
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.:
Rothwell, R. & Freeman, C. & Horsley, A. & Jervis, V. T. P. & Robertson, A. B. & Townsend, J., 1993.
"SAPPHO updated -- project SAPPHO phase II,"
Research Policy,
Elsevier, vol. 22(2), pages 110-110, April.
[Downloadable!] (restricted)
Rothwell, R. & Freeman, C. & Horlsey, A. & Jervis, V. T. P. & Robertson, A. B. & Townsend, J., 1974.
"SAPPHO updated - project SAPPHO phase II,"
Research Policy,
Elsevier, vol. 3(3), pages 258-291, November.
[Downloadable!] (restricted)
Anderson, Simon Peter & de Palma, Andre & Thisse, Jacques-Francois, 1988.
"A Representative Consumer Theory of the Logit Model,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 461-66, August.
[Downloadable!] (restricted)
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.)