Disruptive Technologies and the Emergence of Competition

53 Pages Posted: 16 Sep 2003

See all articles by Ron Adner

Ron Adner

Dartmouth College - Strategy & Management Area; Dartmouth College - Tuck School of Business

Peter B. Zemsky

INSEAD - Strategy; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2003

Abstract

We formalize the phenomenon of disruptive technologies (Christensen, 1997) 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 varies with the rate of technological advance, the number of firms using each technology, segments sizes, marginal costs, 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 a shift from isolation to disruption lowers prices and increases social welfare, but may either increase or decrease the profits of firms using the new technology. By identifying the drivers and implications of technology competition, we contribute to debates about market definition that are often central in anti-trust deliberations. Moreover, we call into question standard results on the effects of mergers in Cournot models. Prior work finds that, absent efficiency gains, mergers among Cournot competitors lower welfare and are only profitable for the merging firms at high levels of concentration. We show that neither of these results need hold when mergers can alter the boundaries of technology competition.

Keywords: Threat of substitutes, market definition, mergers

JEL Classification: L10, L40, M20

Suggested Citation

Adner, Ron and Zemsky, Peter B., Disruptive Technologies and the Emergence of Competition (July 2003). Available at SSRN: https://ssrn.com/abstract=445701

Ron Adner

Dartmouth College - Strategy & Management Area ( email )

Hanover, NH
United States

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Peter B. Zemsky (Contact Author)

INSEAD - Strategy ( email )

Boulevard de Constance
77305 Fontainebleau
France
+33 1 60 72 4162 (Phone)
+31 1 60 74 5500 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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