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The Competitive Crash in Large-Scale Commercial Computing

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  • Timothy F. Bresnahan
  • Shane Greenstein

Abstract

We examine the factors underlying buyer demand for large Information Technology solutions in order to understand the competitive crash in large scale commercial computing. We examine individual buyer data from two periods. The first is in the mid 1980's, late in the period of a mature and stable large-systems market. The other period is in the early 1990's, very early in the diffusion of a new, competitive technology, client/server, when many buyers chose to wait for the new technology to mature. We clarify the implications of different theories of the competitive crash and then test them. The most popular theories are far wrong, while the correct view emphasizes the 'internal' adjustment costs to organizations making IT investments. Understanding buyer behavior not only illuminates the competitive crash, but also the factors underlying the slow realization of the social gains to Information Technology in large complex applications more generally.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4901.

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Date of creation: Oct 1994
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Publication status: published as in Ralph Landan, Timothy Taylor (eds.),The Mosaic of Economic Growth, pp. 357-397, Stanford University Press, Stanford, CA, 1996.
Handle: RePEc:nbr:nberwo:4901

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  1. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 385, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Timothy F. Bresnahan & Manuel Trajtenberg, 1992. "General Purpose Technologies "Engines of Growth?"," NBER Working Papers 4148, National Bureau of Economic Research, Inc.
  3. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 742-55, September.
  4. Timothy F. Bresnahan & Shane Greenstein, 1997. "Technological Competition and the Structure of the Computer Industry," Working Papers, Stanford University, Department of Economics 97028, Stanford University, Department of Economics.
  5. Steven Berry & James Levinsohn & Ariel Pakes, 1993. "Automobile Prices in Market Equilibrium: Part I and II," NBER Working Papers 4264, National Bureau of Economic Research, Inc.
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Cited by:
  1. Joachim Henkel & Eric von Hippel, 2005. "Welfare Implications of User Innovation," The Journal of Technology Transfer, Springer, Springer, vol. 30(2_2), pages 73-87, 01.
  2. Hall, Bronwyn H. & Khan, Beethika, 2003. "Adoption of New Technology," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt3wg4p528, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Timothy F. Bresnahan & Franco Malerba, 1997. "Industrial Dynamics and the Evolution of Firms' and Nations' Competitive Capabilities in the World Computer Industry," Working Papers, Stanford University, Department of Economics 97030, Stanford University, Department of Economics.
  4. Shane M. Greenstein & Mercedes M. Lizardo & Pablo T. Spiller, 1997. "The Evolution of Advanced Large Scale Information Infrastructure in the United States," NBER Working Papers 5929, National Bureau of Economic Research, Inc.

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