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http://ssrn.com/abstract=2079763
 
 

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The User Innovation Paradigm: Impacts on Markets and Welfare


Alfonso Gambardella


Bocconi University - Department of Management and Technology

Christina Raasch


Technische Universität München, TUM School of Management

Eric A. Von Hippel


Massachusetts Institute of Technology (MIT) - Sloan School of Management

March 24, 2014


Abstract:     
Innovation has traditionally been seen as the province of producers. However, theoretical and empirical research now shows that individual users – consumers – are also a major and increasing source of new products and services. To develop the implications, we build a microeconomic model of a market that incorporates innovation by both users and producers. Our analyses show that, due to two distinct externalities, producers under-invest in supporting user innovation. As markets move from a traditional producer-only situation to a situation including user innovators, we find that firm profits and social welfare unambiguously increase, if firms invest in complementing user innovation activity. If, instead, firms choose to substitute for user innovation via in-house R&D, both firm profits and social welfare are likely to be lower. These findings suggest that both firms and society will benefit from a more informed division of innovation-related labor between users and producers.

Number of Pages in PDF File: 34

Keywords: innovation, user innovation

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Date posted: June 7, 2012 ; Last revised: March 26, 2014

Suggested Citation

Gambardella, Alfonso and Raasch, Christina and von Hippel, Eric A., The User Innovation Paradigm: Impacts on Markets and Welfare (March 24, 2014). Available at SSRN: http://ssrn.com/abstract=2079763 or http://dx.doi.org/10.2139/ssrn.2079763

Contact Information

Alfonso Gambardella
Bocconi University - Department of Management and Technology ( email )
Via Roentgen 1
Milan, MI 20136
Italy
Christina Raasch (Contact Author)
Technische Universität München, TUM School of Management ( email )
Arcisstrasse 21
Muenchen, 80333
Germany
HOME PAGE: http://www.tim.wi.tum.de/
Eric Von Hippel
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
E62-455
Cambridge, MA 02142
United States
617-253-7155 (Phone)
617-253-2660 (Fax)
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