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Learning, diffusion and the industry life cycle

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  • Zhu Wang

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

Suggested Citation

  • Zhu Wang, 2006. "Learning, diffusion and the industry life cycle," Payments System Research Working Paper PSR WP 04-01, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkpw:psrwp04-01
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    Cited by:

    1. Horii, Ryo, 2012. "Wants and past knowledge: Growth cycles with emerging industries," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 220-238.
    2. 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.
    3. 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.
    4. Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.
    5. James J. McAndrews & Zhu Wang, 2006. "Microfoundations of two-sided markets: the payment card example," Payments System Research Working Paper PSR WP 06-01, Federal Reserve Bank of Kansas City.
    6. 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.
    7. 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.
    8. 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.
    9. 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.

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