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Functional Demand Satiation and Industrial Dynamcis - The Emergence of the Global Value Chain for the U.S. Footwear Industry

  • Alexander Frenzel Baudisch

Around 1940 Schumpeter draws on an analysis of the U.S. footwear industry as an exemplar case to formulate his famous hypothesis about the positive relation between market concentration and innovative activity. Starting in the 1970s the value chain of U.S. footwear producers disintegrates, eventually separating the process of product innovation from manufacturing in this industry. Studies testing Schumpeter’s hypothesis commonly do not account for the modularity and globalization of an industry’s value chain. Schumpeter having neglected the demand side in his theorizing, we argue that the separation of product innovation and manufacturing in the U.S. footwear industry is influenced by functional satiation effects on demand. If the functional requirements of consumers are met, their willingness to pay for ever more product varieties decreases. Since the early 1970s the ‘oversupply’ of new product varieties and the simultaneously decreasing price level drive market growth beyond functional satiation (Frenzel Baudisch, 2006b). In this paper we argue that this simultaneous price and innovation competition separates the product innovation process from manufacturing to gain economies in both of these processes simultaneously. Discussing the consumers’ motivations to buy products beyond their functional requirements offers a deeper qualitative understanding of the business practices revealed in the historical case of the U.S. footwear industry.

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Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 06-03.

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Date of creation: 2006
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Handle: RePEc:aal:abbswp:06-03
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  1. Peterman, John L, 1975. "The Brown Shoe Case," Journal of Law and Economics, University of Chicago Press, vol. 18(1), pages 81-146, April.
  2. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  3. Rabellotti, Roberta, 1995. "Is there an "industrial district model"? Footwear districts in Italy and Mexico compared," World Development, Elsevier, vol. 23(1), pages 29-41, January.
  4. Mark Bils & Peter J. Klenow, 2001. "The Acceleration of Variety Growth," American Economic Review, American Economic Association, vol. 91(2), pages 274-280, May.
  5. Mulligan, William H., 1981. "Mechanization and Work in the American Shoe Industry: Lynn, Massachusetts, 1852–1883," The Journal of Economic History, Cambridge University Press, vol. 41(01), pages 59-63, March.
  6. Ulrich Witt, . "How Evolutionary is Schumpeter's Theory of Economic Development?," Papers on Economics and Evolution 2001-12, Philipps University Marburg, Department of Geography.
  7. Vermeir, Iris & Van Kenhove, Patrick & Hendrickx, Hendrik, 2002. "The influence of need for closure on consumer's choice behaviour," Journal of Economic Psychology, Elsevier, vol. 23(6), pages 703-727, December.
  8. Gereffi, Gary, 1999. "International trade and industrial upgrading in the apparel commodity chain," Journal of International Economics, Elsevier, vol. 48(1), pages 37-70, June.
  9. H. Schmitz & P. Knorringa, 2000. "Learning from Global Buyers," Journal of Development Studies, Taylor & Francis Journals, vol. 37(2), pages 177-205.
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