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The Competitive Crash in Large-Scale Commercial Computing

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  • Timothy F. Bresnahan
  • Shane Greenstein

Abstract

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.

Suggested Citation

  • Timothy F. Bresnahan & Shane Greenstein, 1994. "The Competitive Crash in Large-Scale Commercial Computing," NBER Working Papers 4901, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4901
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    References listed on IDEAS

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    1. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, vol. 65(1), pages 83-108, January.
    2. Timothy F. Bresnahan & Shane Greenstein, 1999. "Technological Competition and the Structure of the Computer Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 1-40, March.
    3. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    4. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, vol. 76(4), pages 742-755, September.
    5. 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.
    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
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    Cited by:

    1. Bronwyn H. Hall & Beethika Khan, 2003. "Adoption of New Technology," NBER Working Papers 9730, National Bureau of Economic Research, Inc.
    2. Shane M. Greenstein, 1996. "From Superminis to Supercomputers: Estimating Surplus in the Computing Market," NBER Chapters, in: The Economics of New Goods, pages 329-372, National Bureau of Economic Research, Inc.
    3. Joachim Henkel & Eric von Hippel, 2005. "Welfare Implications of User Innovation," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 73-87, January.
    4. Simon Wiederhold, 2012. "The Role of Public Procurement in Innovation: Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 43.
    5. Shane M. Greenstein & Mercedes M. Lizardo & Pablo T. Spiller, 1997. "The Evolution of Advanced Large Scale Information Infrastructure in the United States," NBER Working Papers 5929, National Bureau of Economic Research, Inc.
    6. Timothy F. Bresnahan & Franco Malerba, 1997. "Industrial Dynamics and the Evolution of Firms' and Nations' Competitive Capabilities in the World Computer Industry," Working Papers 97030, Stanford University, Department of Economics.

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