From Superminis to Supercomputers: Estimating Surplus in the Computing Market

Innovation was rampant in the computer industry during the late 1960s and the 1970s. Did innovation vastly extend the capabilities of computers or simply reduce the costs of doing the same thing? This question goes to the heart of whether the rate of decline in 'constant-quality' computing prices incorrectly identifies the sources of improvement and benefits from technological change. This paper argues that innovation freed computers of technical constraints to providing new services, manifesting many new capabilities in systems with larger capacity. Both anecdotal and quantitative evidence suggest that many buyers adopted new systems to get access to these new capabilities, not solely to take advantage of lower prices. The analysis divides itself into several related questions. First, what innovations in this period are associated with extensions of capabilities? Second, do buyers adopt products that embody extensions of capabilities? Third, how does a measurement framework represent that action? Are extensions embodied only in increases in capacity or are they embodied in other measurable features of a computer system as well?