Exploring the relationship between technological improvement and innovation diffusion: An empirical test
📝 Abstract
Different technological domains have significantly different rates of performance improvement. Prior theory indicates that such differing rates should influence the relative speed of diffusion of the products embodying the different technologies since improvement in performance during the diffusion process increases the desirability of the product diffusing. However, there has not been a broad empirical attempt to examine this effect and to clarify the underlying cause. Therefore, this paper reviews the theoretical basis and focuses upon empirical tests of this effect across multiple products and their underlying technologies. The results for 18 different diffusing products show the expected relationship-faster diffusion for products based on more rapidly improving technological domains- between technological improvement and diffusion with strong statistical significance. The empirical examination also demonstrates that technological improvement does not slow down in the latter parts of diffusion when penetration does slow down. This finding indicates that diffusion slow down in the latter stages is due to market saturation effects and is not due to slowdown of performance improvement.
💡 Analysis
Different technological domains have significantly different rates of performance improvement. Prior theory indicates that such differing rates should influence the relative speed of diffusion of the products embodying the different technologies since improvement in performance during the diffusion process increases the desirability of the product diffusing. However, there has not been a broad empirical attempt to examine this effect and to clarify the underlying cause. Therefore, this paper reviews the theoretical basis and focuses upon empirical tests of this effect across multiple products and their underlying technologies. The results for 18 different diffusing products show the expected relationship-faster diffusion for products based on more rapidly improving technological domains- between technological improvement and diffusion with strong statistical significance. The empirical examination also demonstrates that technological improvement does not slow down in the latter parts of diffusion when penetration does slow down. This finding indicates that diffusion slow down in the latter stages is due to market saturation effects and is not due to slowdown of performance improvement.
📄 Content
1 Exploring the relationship between technological improvement and innovation diffusion: An empirical test
JongRoul Wooa, and Christopher L. Mageea,b
a Institute for Data, Systems, and Society, Massachusetts Institute of Technology, 77 Massachusetts Avenue, Cambridge, MA 02139-4307, United States
b SUTD-MIT International Design Center, Massachusetts Institute of Technology, 77 Massachusetts Avenue, Cambridge, MA 02139-4307, United States
Corresponding author. E-mail: jroul86@mit.edu; Tel.: +1-617-386-3392
2 Abstract Different technological domains have significantly different rates of performance improvement. Prior theory indicates that such differing rates should influence the relative speed of diffusion of the products embodying the different technologies since improvement in performance during the diffusion process increases the desirability of the product diffusing. However, there has not been a broad empirical attempt to examine this effect and to clarify the underlying cause. Therefore, this paper reviews the theoretical basis and focuses upon empirical tests of this effect across multiple products and their underlying technologies. The results for 18 different diffusing products show the expected relationship-faster diffusion for products based on more rapidly improving technological domains- between technological improvement and diffusion with strong statistical significance. The empirical examination also demonstrates that technological improvement does not slow down in the latter parts of diffusion when penetration does slow down. This finding indicates that diffusion slow down in the latter stages is due to market saturation effects and is not due to slowdown of performance improvement.
Keywords: Innovation diffusion; Technological improvement; Technological change
3
- Introduction
It is widely accepted that technological change is a major source of economic growth (Romer, 1990; Solow,
1957). Although invention and innovation are essential aspects of technological change, diffusion is
critical to economic or social impact since innovations must spread across their potential markets over
time to have such impact. Because of this importance of the diffusion process in technological change,
there have been many technological change studies geared toward understanding diffusion.
First, it has been observed that the diffusion pattern of successful innovations over time generally follows an S-curve, but diffusion speeds (In general, the speed indicates the distance traveled divided by the travel time. In the diffusion context, the distance can be defined as the difference between two penetration levels and the time can be defined as the amount of time it takes to go from one penetration level to another) at similar phases of the process vary considerably for different innovations (Geroski, 2000; Hall, 2005). Other studies have identified the factors affecting diffusion speeds and explaining variation in diffusion speeds for different innovations. Some of these studies have taken a static view of diffusing innovations and emphasized the effects of economic and social environment factors on diffusion speeds (Bayus, 1992; Cho et al., 2012; Griliches, 1957; Lee et al., 2017; Mansfield, 1961; 1989; Olshavsky, 1980; Rogers, 1995; Van den Bulte, 2000). Meanwhile, there are theoretical studies noting that technological improvement also significantly affects the diffusion process (Chow, 1967; Davies, 1979; Ireland and Stoneman, 1986; Metcalfe, 1981; Rosenberg, 1976; Stoneman and Ireland, 1983; Stoneman,
- and empirical studies to provide evidence for this effect in some products such as computers, numerically controlled machine tools, semi-dwarf wheat, and telephones (Bagchi et al, 2008; Chow, 1967; Karshenas and Stoneman, 1993; Knudson, 1991; Stoneman and Toivanen, 1997). However, none of the empirical studies look at multiple domains with different rates of improvement- our focus.
4 In this regard, it is well established that the performance of all technological domains that have been measured increase exponentially over time by different rates (Farmer and Lafond, 2016; Koh and Magee, 2006; 2008; Magee et al., 2016; Moore, 1965; Nagy et al., 2013; Sahal, 1979). Based on the previous studies mentioned above, one might intuitively speculate that such differing rates will influence the relative speed of diffusion and an initial diffusion speed would be more strongly accelerated for an innovation that improves more rapidly. However, there has not been a cross-domain empirical study. Having such a quantitative basis will allow one to estimate the benefits for diffusion of more rapidly improving performance. This paper relates theoretical and empirical studies by reviewing the theoretical basis and focusing upon empirical tests of this effect across multiple p
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