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Technology Innovation and Market Turbulence: A Dotcom Example

  • Zhu Wang

    ()

    (Payments System Research Federal Reserve Bank of Kansas City)

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This paper explains market turbulence, such as the recent dotcom boom/bust cycle, as equilibrium industry dynamics triggered by technology innovation. When a major technology innovation arrives, a wave of new firms implement the innovation and enter the market. However, if the innovation complements existing technology, some new entrants will later be forced out as more and more incumbent firms succeed in adopting the innovation. It is shown that the diffusion of Internet technology among traditional brick-and-mortar firms is indeed the driving force behind the rise and fall of dotcoms as well as the sustained growth of e-commerce. Systematic empirical evidence from retail and banking industries supports the theoretical findings

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File URL: http://repec.org/sed2006/up.28861.1139968765.pdf
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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 508.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:508
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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