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Technological Progress on Consumption side: Consolidation and Prevalence of Complements


  • Gupta, Abhay


This paper discusses the effect of technological innovation on consump- tion side. Apart from Quality effect (improvement in the quality of service or reduction in constant-quality price), there is another ”Consolidation effect”. This takes form of more features (which can be enjoyed together) being included in the same service. This effect is driven by the Time-constraint in form of technological limit on consumption per unit of time. The effect is stronger if features being bundled together are complementary to each other. Another aspect is shown by offering an alternative explanation of Engel’s Law. If complementarity of a sector is affected by technological externalities, the income share spent on that sector changes. The direction of movement depends whether the tech progress has developed ”enhancing” (positive) or ”impeding” (negative) complements. Service sector has more of these en- hancing complements and hence income share spent on service sector has gone up.

Suggested Citation

  • Gupta, Abhay, 2006. "Technological Progress on Consumption side: Consolidation and Prevalence of Complements," MPRA Paper 8998, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8998

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    References listed on IDEAS

    1. J.S. Metcalfe, 2001. "special issue: Consumption, preferences, and the evolutionary agenda," Journal of Evolutionary Economics, Springer, vol. 11(1), pages 37-58.
    2. Waka Cheung & Yew-Kwang Ng, 2004. "The different consumption functions of products and product differentiation," Econometric Society 2004 Australasian Meetings 318, Econometric Society.
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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L80 - Industrial Organization - - Industry Studies: Services - - - General


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