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Competitive Diffusion

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  • Boyan Jovanovic
  • Glenn MacDonald

Abstract

The usual explanation for why the producers of a given product use different technologies involves "vintage-capital": A firm understands the frontier technology, but can still prefer an older, less efficient technology in which it has made specific physical and human capital investments. This paper develops an alternative. "information-barrier" hypothesis: Firms differ in the technologies they use because it is costly for them to overcome the informational barriers that separate them. The paper endogenizes both innovative and imitative effort. The industry life-cycle implications -- declining price and increasing output -- broadly agree with the Gort-Klepper data. Empirically, the paper focuses on the slow spread of Diesel locomotives, which can not be explained by the vintage-capital hypothesis alone. For instance, contrary to that hypothesis, railroads were buying new steam locomotives long after the Diesel first came into use -- exactly as the information-barrier hypothesis would imply.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4463.

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Date of creation: Sep 1993
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Publication status: published as Journal of Political Economy, 102, no. 1, (February 1994), p. 24-52
Handle: RePEc:nbr:nberwo:4463

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  1. Karl Shell, 2010. "A Model of Inventive Activity and Capital Accumulation," Levine's Working Paper Archive 1409, David K. Levine.
  2. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  3. Jovanovic, Boyan & Rob, Rafael, 1989. "The Growth and Diffusion of Knowledge," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(4), pages 569-82, October.
  4. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  5. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 630-53, September.
  6. Andolfatto, D. & MacDonald, G.M., 1995. "Endogeneous Technological Change, Growth, and Aggregate Functions," Working Papers, University of Waterloo, Department of Economics 9504, University of Waterloo, Department of Economics.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  8. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(6), pages 1142-65, December.
  9. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(364), pages 907-18, December.
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