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Learning, diffusion and the industry life cycle

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  • Zhu Wang
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Abstract

An industry typically experiences initial mass entry and later shakeout of producers over its life cycle. It can be explained as a competitive equilibrium outcome driven by the dynamic interaction between technology progress and demand diffusion. When a new product is introduced, high-income consumers tend to adopt it first. Technology then improves with cumulative output and demand growth generates S-shaped diffusion as the product penetrates lower-income groups. Eventually fewer new adopters are available and the number of firms starts to decline. It is shown that faster technological learning, higher mean income or larger market size contributes to faster demand diffusion and earlier industry shakeout. Empirical studies on the US and UK television industries as well as ten other US industries confirm the theoretical findings. ; Alternate title: Income distribution, market size and the evolution of industry

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File URL: http://www.kansascityfed.org/publicat/psr/rwp/NBER-WangPaper.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Kansas City in its series Payments System Research Working Paper with number PSR WP 04-01.

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Date of creation: 2006
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Handle: RePEc:fip:fedkpw:psrwp04-01

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Keywords: Technology;

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  1. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
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  10. Kiminori Matsuyama, 2000. "The Rise of Mass Consumption Societies," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 23, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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Citations

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Cited by:
  1. Richard J. Sullivan & Zhu Wang, 2005. "Internet banking: an exploration in technology diffusion and impact," Payments System Research Working Paper PSR WP 05-05, Federal Reserve Bank of Kansas City.
  2. James McAndrews & Zhu Wang, 2007. "Microfoundations of Two-sided Markets: The Payment Card Example," DNB Working Papers 128, Netherlands Central Bank, Research Department.
  3. Gamal Atallah, 2009. "A Three-Period Analysis of R&D Spillovers in the Presence of an Industry Life Cycle Pattern," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 8(1), pages 21-35, April.
  4. Peter Thompson & Mihaela Pintea, 2008. "Sorting, Selection, and Industry Shakeouts," Review of Industrial Organization, Springer, vol. 33(1), pages 23-40, August.
  5. Ryo Horii, 2006. "Wants and Past Knowledge: Growth Cycles with Emerging Industries," Discussion Papers in Economics and Business 06-03, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Zhu Wang, 2006. "Technology Innovation and Market Turbulence: A Dotcom Example," 2006 Meeting Papers 508, Society for Economic Dynamics.
  7. Zhu Wang, 2007. "Technological Innovation and Market Turbulence: The Dot-com Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 78-105, January.
  8. Zhu Wang, 2008. "Market structure and credit card pricing: what drives the interchange?," Payments System Research Working Paper PSR WP 06-04, Federal Reserve Bank of Kansas City.
  9. Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.
  10. Boyan Jovanovic & Chung-Yi Tse, 2010. "Entry and Exit Echoes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 514-536, July.
  11. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.

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