Market Failure in the Diffusion of User Innovations: The Case of 'Off-Label' Innovations by Medical Clinicians
Eric A. Von Hippel
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Harold J. DeMonaco
Massachusetts General Hospital; Massachusetts Institute of Technology (MIT) - Sloan School of Management
Jeroen P.J. De Jong
RSM Erasmus University
September 24, 2014
User innovators develop new products and services in order to use them rather than to sell them. They also quite generally do not charge others who may wish to adopt their designs. As a consequence, as we argue in this article, the benefits that others might obtain from adopting will be at least partially an externality for innovating users. We propose that this circumstance creates the possibility of an important market failure. A user-developer’s investment in diffusion can lower adoption costs for many. However, as user-developers may have no or “too low” incentives to invest for this purpose, diffusion of their innovations may be not optimal from a social welfare perspective.
In this paper, we conduct a first exploration of this potentially important and general type of market failure in one specific field: clinicians incentives to diffuse information regarding novel “off-label” drug applications they discover and apply in their own medical practices. We find that diffusion efforts by clinicians can greatly increase the diffusion of their generally valuable discoveries. However, we also find that clinician innovators invest very little in such efforts – resulting in under-diffusion of this type of innovation from the social welfare perspective. We discuss how this market failure could be addressed.
Number of Pages in PDF File: 24
Keywords: user innovation, diffusion
Date posted: June 8, 2013 ; Last revised: September 25, 2014
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