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The Competitive Crash in Large-Scale Commercial Computing

  • Timothy F. Bresnahan
  • Shane Greenstein

We examine the factors underlying buyer demand for large Information Technology solutions in order to understand the competitive crash in large scale commercial computing. We examine individual buyer data from two periods. The first is in the mid 1980's, late in the period of a mature and stable large-systems market. The other period is in the early 1990's, very early in the diffusion of a new, competitive technology, client/server, when many buyers chose to wait for the new technology to mature. We clarify the implications of different theories of the competitive crash and then test them. The most popular theories are far wrong, while the correct view emphasizes the 'internal' adjustment costs to organizations making IT investments. Understanding buyer behavior not only illuminates the competitive crash, but also the factors underlying the slow realization of the social gains to Information Technology in large complex applications more generally.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4901.

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Date of creation: Oct 1994
Date of revision:
Publication status: published as in Ralph Landan, Timothy Taylor (eds.),The Mosaic of Economic Growth, pp. 357-397, Stanford University Press, Stanford, CA, 1996.
Handle: RePEc:nbr:nberwo:4901
Note: IO PR
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, vol. 65(1), pages 83-108, January.
  3. Steven Berry & James Levinsohn & Ariel Pakes, 1993. "Automobile Prices in Market Equilibrium: Part I and II," NBER Working Papers 4264, National Bureau of Economic Research, Inc.
  4. Timothy F. Bresnahan & Shane Greenstein, 1997. "Technological Competition and the Structure of the Computer Industry," Working Papers 97028, Stanford University, Department of Economics.
  5. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, vol. 76(4), pages 742-55, September.
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