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http://ssrn.com/abstract=1733174
 
 

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Estimating the Innovator's Dilemma: Structural Analysis of Creative Destruction in the Hard Disk Drive Industry


Mitsuru Igami


Yale University, Faculty of Arts & Sciences, Department of Economics

August 20, 2014


Abstract:     
This paper studies strategic industry dynamics of creative destruction in which firms and technologies turn over. Theories predict cannibalization between existing and new products delays incumbents’ innovation, whereas preemptive motives accelerate it, and incumbents’ cost (dis)advantage relative to that of entrants would further reinforce these tendencies. To empirically assess these three forces, I develop and estimate a dynamic oligopoly model using a unique panel dataset of hard disk drive (HDD) manufacturers (1981-98). The results suggest that despite strong preemptive motives and a substantial cost advantage over entrants, incumbents are reluctant to innovate because of cannibalization, which can explain at least 66% of the incumbent-entrant innovation gap. I then assess hypothetical policy interventions concerning broad patents and license fees, and find the industry’s welfare trajectory difficult to outperform.

Number of Pages in PDF File: 56

Keywords: Creative Destruction, Dynamic Oligopoly, Structural Estimation

JEL Classification: L13, O31

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Date posted: January 1, 2011 ; Last revised: August 22, 2014

Suggested Citation

Igami, Mitsuru, Estimating the Innovator's Dilemma: Structural Analysis of Creative Destruction in the Hard Disk Drive Industry (August 20, 2014). Available at SSRN: http://ssrn.com/abstract=1733174 or http://dx.doi.org/10.2139/ssrn.1733174

Contact Information

Mitsuru Igami (Contact Author)
Yale University, Faculty of Arts & Sciences, Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
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