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Waves of Creative Destruction: Customer Bases and the Dynamics of Innovation

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  • Jeremy C. Stein

Abstract

This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: 1) product quality or cost, where one firm's innovation ultimately spills over to other firms; and 2) distribution costs, where there are no spillovers across firms and where incumbent firms' existing customer bases give them a competitive advantage over would- be entrants. Customer bases have two important consequences: 1) they can in some circumstances dramatically reduce the long-run average level of innovation; 2) they lead to endogenous bunching, or waves, in innovative activity.

Suggested Citation

  • Jeremy C. Stein, 1994. "Waves of Creative Destruction: Customer Bases and the Dynamics of Innovation," NBER Working Papers 4782, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4782
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    2. Milind M. Shrikhande, 1997. "The cost of doing business abroad and international capital market equilibrium," FRB Atlanta Working Paper 97-3, Federal Reserve Bank of Atlanta.

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