The Market Evolution and Take-Off of Product Innovations

32 Pages Posted: 7 May 2002

See all articles by Rajshree Agarwal

Rajshree Agarwal

University of Maryland - Robert H. Smith School of Business

Barry L. Bayus

University of North Carolina Kenan-Flagler Business School

Date Written: May 2002

Abstract

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.

Suggested Citation

Agarwal, Rajshree and Bayus, Barry, The Market Evolution and Take-Off of Product Innovations (May 2002). Review of Marketing Science WP No. 214. Available at SSRN: https://ssrn.com/abstract=310864 or http://dx.doi.org/10.2139/ssrn.310864

Rajshree Agarwal (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Barry Bayus

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599
United States
919-962-3210 (Phone)

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