The Market Evolution and Take-Off of Product Innovations
32 Pages Posted: 7 May 2002
Date Written: May 2002
In contrast to the prevailing supply-side explanation that price decreases are the key driver of a sales take-off, we argue that outward shifting supply and demand curves lead to market take-off. Our fundamental idea is that sales in new markets are initially low since the first commercialized forms of new innovations are primitive. Then, as new firms enter, actual and perceived product quality improves (and prices possibly drop) which leads to a take-off in sales. To provide empirical evidence for this explanation, we explore the relationship between take-off times, price decreases, and firm entry for a sample of consumer and industrial product innovations commercialized in the US over the past 150 years. Based on a proportional hazards analysis of take-off times, we find that new firm entry dominates other factors in explaining observed sales take-off times. We interpret these results as supporting the idea that demand shifts during the early evolution of a new market due to non-price factors is the key driver of a sales take-off.
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