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Abstract: The literature establishes a strong link between radical innovation, first-mover advantage and market dominance. However, there are numerous examples where, despite being the first-mover and radically innovating, companies have failed to achieve a significant market share. In fact, incremental innovation can, sometimes, influence the industry in a more significant way than radical innovation. The aim of this article is to investigate the relation between radical innovation, incremental innovation and market dominance. It explains why radical innovation and first-mover advantage might fail to provide competitive advantage and weaken companies. In order to do so, the article examines the key determinants of why first-movers may face a disadvantage in comparison to followers. These theoretical results are supported by the case study of four products released by Apple, two of which correspond to radical innovations and to others to incremental innovation.
incremental innovation, radical innovation, first-mover advantage, digital audio player, Apple, iPod, iMac, Lisa, Newton
Abstract: The aim of this article is to study the phenomenon of chasm that often exists in the diffusion of innovation and to devise a theoretical framework enabling to explain the ability of some firms to cross this chasm, while many others remain unsuccessful. The proposition developed in this article is that the choice of initial market segment has crucial importance as adoption in this segment can lead to a cascade of adoption in the other segments. To illustrate this proposition, three cases studies of an historical leader (Sony), a first mover (Archos) and a newcomer (Apple) in the market for digital audio players are presented.
Diffusion of innovation, Chasm, Cascading market segments, Digital audio players, Sony, Apple, Archos
Abstract: The aim of this article is to evaluate, from an economic perspective, the efficiency of Web 2.0. It demonstrates that, because of the non-monetary nature of Web 2.0, several sources of inefficiencies (search costs, externalities, crowding out and adverse selection) exist. Nonetheless, the economic nature of digital products and the expected low value of most online content make it impossible to adopt a simple market scheme for Web 2.0. In contrast, this article introduces a concept of demand-driven Web 2.0 (as opposed to the current Web 2.0, which is supply-driven) that is expected to provide stronger incentives, through financial reward, for high quality content within a Web 2.0 environment.
Web 2.0, Transaction costs, Externalities, Adverse selection, Efficiency
Abstract: This article investigates the economic nature and characteristics of digital goods. Such goods are, due to their replicability, shown to be public goods (albeit in an evolutionary way) and durable goods. Furthermore, the content of such goods, combined with their durability, makes them experience goods. While only one of these characteristics would be sufficient to create difficulties for producers and lead to market failure, this article demonstrates that each of the characteristics reinforces the other. The framework presented in the article is then applied to two important issues: The new trend of massive consumer piracy and the overall problem of value of digital goods.
digital goods, public goods, durable goods, experience goods, piracy
Abstract: The paper systematises the previous research on trust in virtual teams, by examining how trust and other elements of social capital can be created in virtual teams and where the value created by social capital resides. The study is guided by three main questions: What value can social capital create for virtual teams and organisations? How are social capital elements interlinked? What are the difficulties of developing social capital, and especially trust for virtual teams and how can these difficulties affect the process of corporate value creation?
virtual organisation, virtual team, social capital, trust, value creation
Abstract: Due to its ability to solve all main problems associated with digital goods, Digital Rights Management is the favorite option used by companies to tackle piracy. The aim of this article is to discuss the consequences of DRM for consumers, firms and society. The rationales of DRM are discussed and the expected benefits for firms are presented. In contrast, consumers are shown to be likely to see few benefits in DRM. This article demonstrates that even a standard DRM system is unlikely to improve social welfare. The article concludes with some public policy recommendations.
Digital Rights Management, Digital Goods, Piracy, Excludability, Durability, Sampling
Abstract: The decrease of privacy caused by Digital Rights Management is a serious issue, since it slows down the adoption by the consumers of the DRM technologies, at a time when a very large adoption is needed to win the fight against piracy. This article presents two outlines of solutions that are expected to allow fight against piracy and respect of privacy to coexist. The first solution consists of combining first-degree price discrimination and rewarded disclosure in a mutually advantageous trade. The second solution introduces a different type of DRM systems that aims at making the digital goods rival in consumption, thereby leading to anonymous DRM.
Privacy, digital rights management, digital goods, price discrimination, public goods, piracy
Abstract: Due to its extensive usage of high-tech, the music industry is often discussed in the innovation literature. Music, however, is not only about recording; it is also about means to create music: the instruments.
When it comes to high-tech, the instrument industry is the antipodes of recording industry and most of the musical instruments are still very much the same as what they used to be centuries ago. Yet, the electric guitar industry provides a good example of a technological evolution which is both conservative and modern and the outcome of innovation in this industry greatly differs from other industries. In fact, the electric guitar represents an intense fusion between an already mature market, the guitar market, and disruptive technologies.
Since its invention, in the early 1920s, the electric guitar has been the object of a constant struggle between conservatism and innovation. Its evolution also reflects the opposition between traditional labour-intensive craftsmanship, seen as a proof of quality, and the industrialised processes required by mass production.
The two current market leaders, Fender and Gibson had an equal share of successful and failed innovations, with the best period in terms of innovation being when both Fender and Gibson based their innovations on their core competences. On the other hand, innovations that were inspired by the attempts to copy each other were bound to fail. Another reason for some of the failed innovations is companies' misunderstanding of customers needs.
This paper examines the development paths taken by the two main electric guitar manufacturers, Gibson and Fender, and explores the reasons that led to this way of development, in particular changing users' tastes and Gibson's and Fender's attempts to increase their respective market share. In addition, the rate of innovation, and the evolution of this rate, is analysed for both companies. This research is based on two detailed case studies, that provide an overview of industry development, as well as an empirical analysis of the patent statistics related to these two companies.
Electric Guitar, Innovation, Patents
Abstract: This article explains how DRM helped Apple gain market leadership, why Microsoft departed from its usual "software-only" strategy and dropped PlayForSure (and its partners) to launch Zune, why Sony, the historical market leader, failed where Apple succeeded while using the same strategy and, finally, why Napster and iTunes are not competing directly.
Using the premise that digital technology has made music an infinitely durable product, this article analyses the market of online music. Whereas the literature states that, in an oligopoly, selling a durable good is the dominant strategy, it is demonstrated that, in this particular industry, renting is the best strategy. This is because because of the consumer switching costs that renting generates. However, for firms, such as Apple, Sony or Microsoft who supply a complementary non-durable good (iPod, Windows, etc.), selling remains the best strategy, as they are already protected by switching costs.
Furthermore, this article shows that even in a monopoly situation, selling the music is the best strategy, as it creates a loop of self-reinforcing switching costs between the durable (music) and the non-durable (iPod, etc.) complement.
Finally, this article assesses, theoretically and empirically, the performance of both renting and selling strategies in regard to piracy. Taking into account the subjective durability of music for consumers, it is demonstrated that piracy inverses the Coase results related to durability: it is better to rent to consumers for whom music is not very durable and to sell to consumers for whom it is very durable.
Durable goods, Coase conjecture, Online music, Piracy, Competition, Oligopoly, Switching Costs, Digital Rights Management, Intellectual Property Rights, Apple, Sony, Microsoft, Napster, iPod
Abstract: The aim of the article is to examine whether Venture Capital Trusts (VCTs) meet government's expectations and help to solve the problem of underinvestment in young companies. In order to do so a survey of companies that were funded by one of the VCTs, the Oxford Technology Trust, was conducted and the results of this exploratory study are presented in this article. VCTs are compared to two recent government initiatives that also target the lack of investment in young firms. Finally, an attempt is made to assess the effectiveness of VCTs, in particular, and such policies, in general.
Venture capital trust, VCT, equity gap, business angels, start-ups, enterprise capital funds, ECF, London Technology Fund, LTF, UK
Abstract: This article investigates the relation between the level of publicness of digital goods - i.e. their degree of non-excludability and non-rivalness - and the pirating behaviour of the consumers. The main focus is put on the difference between the ex-ante level of publicness - determined by the anti-piracy strategies of the firms - and the ex-post level of publicness - which is a consequence of external factors such as the consumers' network structure, the consumers' sharing behaviour, etc. The two models developed in the article detail the required conditions for anti-piracy strategies to be successful and show the influence of the economic environment on these conditions.
Digital goods, Piracy, Public goods, Free-riding, Intellectual Property Rights
Abstract: With four major companies sharing more than 85% of the market, the recording industry is one of the most concentrated industries. While this market concentration has been traditionally linked with high barriers to entry, recent technological changes have made these barriers almost disappear. Nonetheless, market concentration remains, mostly due to IPRs protecting major companies. This has traditionally been considered acceptable due to the high sunk costs of music recording that prevent an efficient outcome in a competitive environment. This article calls this traditional wisdom into question and demonstrates that the majors are not only monopolies but also monoposonies: they are monometapolies. It is shown that the negative effects of a monometapoly are worse than those of a simple monopoly and that the loss of welfare indirectly caused by IPRs is likely to be much higher than is usually expected. Finally, this articles challenges the widespread idea, among cultural economists, that artists are the only ones to be blamed for their poor living conditions. Indeed, it is demonstrated that oversupply on their part is a merely a sign of the monometapolistic structure of the industry and not the root of the problem, as it is usually thought.
music industry, monopoly, monopsony, monometapoly, Intellectual Property Rights
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