Disruptive Technologies and the Emergence of Competition
INSEAD Working Paper No. 2001/103/SM
50 Pages Posted: 13 Dec 2001
Date Written: July 2, 2003
We formalize the phenomenon of disruptive technologies that initially serve isolated market niches and, as they mature, expand to displace established technologies from mainstream segments. Using a model of horizontal and vertical differentiation with discrete customer segmentation, we show how the threat of disruption depends on such factors as the rate of technological advance, the number of firms using each technology, and the ability of firms to price discriminate. We characterize the effect of disruption on prices, market shares, social welfare and innovation incentives. We show that the potential for mergers to alter the boundaries of competition has important implications for evaluating their impact on social welfare and firm profits.
Keywords: Disruptive technologies, market definition, technology convergence, product differentiation
JEL Classification: L1, L4, O3
Suggested Citation: Suggested Citation