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Technological innovation and market turbulence: the dot-com experience

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  • Zhu Wang

Abstract

This paper explains market turbulence, such as the recent dotcom boom/bust cycle, as equilibrium industry dynamics triggered by technology innovation. When a major technology innovation arrives, a wave of new firms enter the market implementing the innovation for profits. However, if the innovation complements existing technology, some new entrants will later be forced out as more and more incumbent firms succeed in adopting the innovation. It is shown that the diffusion of Internet technology among traditional brick-and-mortar firms is indeed the driving force behind the rise and fall of dotcoms as well as the sustained growth of e-commerce. Empirical evidence from retail and banking industries supports the theoretical findings. ; Earlier title: Technology innovation and market turbulence: a dot-com example

Suggested Citation

  • Zhu Wang, 2005. "Technological innovation and market turbulence: the dot-com experience," Payments System Research Working Paper PSR WP 05-02, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkpw:psrwp05-02
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Zhu Wang & Fumiko Hayashi, 2011. "Product Innovation and Network Survival in the U.S. ATM and Debit Card Industry," 2011 Meeting Papers 725, Society for Economic Dynamics.
    2. Fumiko Hayashi & Bin Grace Li & Zhu Wang, 2017. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 180-203, October.
    3. Weinstein, Russell, 2017. "Local Labor Markets and Human Capital Investments," IZA Discussion Papers 10598, Institute for the Study of Labor (IZA).
    4. 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.
    5. 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.
    6. Richard J. Sullivan & Zhu Wang, 2013. "Internet banking: an exploration in technology diffusion and impact," Working Paper 13-10, Federal Reserve Bank of Richmond.
    7. Hayashi, Fumiko & Wang, Zhu, 2008. "Product innovation and network survival in the U.S. ATM and debit card network industry," Research Working Paper RWP 08-14, Federal Reserve Bank of Kansas City, revised 01 Jan 2011.

    More about this item

    Keywords

    Technology;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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