Economics of Product Development by Users: The Impact of "Sticky" Local Information
Those who solve more of a given type of problem tend to get better at it---which suggests that problems of any given type should be brought to specialists for a solution. However, in this paper we argue that agency-related costs and information transfer costs ("sticky" local information) will tend drive the locus of problem-solving in the opposite direction---away from problem-solving by specialist suppliers, and towards those who directly benefit from a solution and who have difficult-to-transfer local information about a particular application being solved, such as the direct users of a product or service. We examine the actual location of design activities in two fields in which custom products are produced by "mass-customization" methods: application-specific integrated circuits (ASICs) and computer telephony integration (CTI) systems. In both, we find that users rather than suppliers are the actual designers of the application-specific portion of the product types examined. We offer anecdotal evidence that the pattern of user-based customization we have documented in these two fields is in fact quite general, and we discuss implications for research and practice.
Volume (Year): 44 (1998)
Issue (Month): 5 (May)
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- Richard R. Nelson, 1982. "The Role of Knowledge in R&D Efficiency," The Quarterly Journal of Economics, Oxford University Press, vol. 97(3), pages 453-470.
- Eric von Hippel, 1994. ""Sticky Information" and the Locus of Problem Solving: Implications for Innovation," Management Science, INFORMS, vol. 40(4), pages 429-439, April.
- Arora, Ashish & Gambardella, Alfonso, 1994. "The changing technology of technological change: general and abstract knowledge and the division of innovative labour," Research Policy, Elsevier, vol. 23(5), pages 523-532, September.
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