Economics Stack Exchange Archive

What do studies say about the length and causes of the innovation-adoption lag

It is said that in research & development, a new technology (e.g. GMR-based HDD’s, new medicines) needs at least a decade to become a mass-market product and succeed over old & proven technologies. There are many patents and people trying to sell their product/ideas, that often fail. Larger companies are able to successfully commercialize a new product in the mass market when it’s not a revolutionizing new technology and where a start-up would find no venture-capital.

What is the research evidence on the common important steps and hurdles in this process of (technological change)?

Answer 67

A common approach used in many companies (who model at all) is the Bass Diffusion Model and "describes the process of how new products get adopted as an interaction between users and potential users":

Bass Diffusion Model

Where:

There are look-up tables where you can go and find p and q for your market but it does rely on a huge number of assumptions. Some products have very predictable life-cycles (mobile phones, some medical devices) while others are a lot less predictable (shipping, for instance).

In highly competitive markets (which can also be ones in which customers are too poor to take risks on unknown products/brands) these sorts of approaches can be useful. More "sticky" markets (high regulatory hurdles which favour incumbents - including tariffs, local content rules, local ownership rules, regulatory monopolies) then these approaches are almost useless.

Patent costs are certainly a part of market conditions but there is little evidence of favouritism (or regulatory monopoly of the patent system by a small number of players) so the likely cost can be considered neutral for all companies (potentially being larger for smaller companies - but such regulatory/legal/administrative burdens usually fall harder on small companies anyway).

The list of macro-economic factors which may limit an investment really depend on the company and product (as well as their appetite for risk). I've used anything from nature of exports, to GDP/capita to population growth rate under 16 as factors. It can be incredibly diverse.

As to what criteria a company uses to decide whether to invest? Essentially, based on estimated adoption factors, as well as mitigating competitor action (as per Bass) will the company make sufficient return on investment to justify the risk? If so, go for it.

Answer 91

A related book which is worth reading: Rogers, Everett M. Diffusion of Innovations.

GG book page: http://books.google.com/books?id=zw0-AAAAIAAJ&hl=en

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