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Market Failure in the Diffusion of Consumer-Developed Innovations: Patterns in Finland

27 Pages Posted: 19 Apr 2014 Last revised: 23 Jun 2015

Jeroen P.J. de Jong

Utrecht University - Utrecht University School of Economics

Eric A. von Hippel

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

Fred Gault

UNU-MERIT

Jari H. Kuusisto

University of Vaasa / SC-Research

Christina Raasch

Technische Universität München, TUM School of Management

Date Written: June 2015

Abstract

Empirical studies have shown that millions of individual users develop new products and services to serve their own needs. The economic impact of this phenomenon increases if and as adopters in addition to the initial innovators also gain benefits from those user-developed innovations. It has been argued that the diffusion of user-developed innovations is negatively affected by a new type of market failure: value that others may gain from a user-developed product can often be an externality to consumer-developers. As a result, consumer innovators may not invest in supporting diffusion to the extent that would be socially optimal. In this paper, we utilize a broad sample of consumers in Finland to explore the extent to which innovations developed by individual users are deemed of potential value to others, and the extent to which they diffuse as a function of perceived general value. Our empirical analysis supports the hypothesis that a market failure is affecting the diffusion of user innovations developed by consumers for their own use. Implications and possible remedies are discussed.

Keywords: User innovation, commercial diffusion, peer-to-peer diffusion, general value, market failure

Suggested Citation

de Jong, Jeroen P.J. and von Hippel, Eric A. and Gault, Fred and Kuusisto, Jari H. and Raasch, Christina, Market Failure in the Diffusion of Consumer-Developed Innovations: Patterns in Finland (June 2015). Available at SSRN: https://ssrn.com/abstract=2426498 or http://dx.doi.org/10.2139/ssrn.2426498

Jeroen P.J. De Jong

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Eric Von Hippel (Contact Author)

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)

Fred Gault

UNU-MERIT ( email )

Keizer Karelplein 19
Maastricht, 6211TC
Netherlands
31433884400 (Phone)

HOME PAGE: http://www.merit.unu.edu

Jari Kuusisto

University of Vaasa / SC-Research ( email )

Poutuntie 17
Lapua, 62100
Finland
+358456787633 (Phone)

HOME PAGE: http://www.scr.fi

Christina Raasch

Technische Universität München, TUM School of Management ( email )

Arcisstrasse 21
Muenchen, 80333
Germany

HOME PAGE: http://www.tim.wi.tum.de/

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