Market Segmentation and the Sources of Rents from Innovation: Personal Computers in the Late 1980s

RAND JOURNAL OF ECONOMICS, Vol. 27, No. 0, Special Issue

Posted: 19 Feb 1997

See all articles by Timothy Bresnahan

Timothy Bresnahan

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Manuel Trajtenberg

Tel Aviv University - Eitan Berglas School of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Abstract

We evaluate the sources of transitory market power in personal computers in the late 1980s to explain how high rates of imitative entry coexisted with high rates of innovative investment. We measure the impact of different principles of differentiation (PDs); each PD reflects a distinct notion of product similarity, offering a potential source of market segmentation. One PD measures the substitutability between frontier and nonfrontier products, while a second PD measures the advantage afforded by a brand-name reputation. We find segmentation along both dimensions, which meant that the effects of competitive events (such as entry) were localized. A high rate of entry was consistent with slow erosion of incumbent rents.

JEL Classification: L63

Suggested Citation

Bresnahan, Timothy F. and Bresnahan, Timothy F. and Stern, Scott and Trajtenberg, Manuel, Market Segmentation and the Sources of Rents from Innovation: Personal Computers in the Late 1980s. RAND JOURNAL OF ECONOMICS, Vol. 27, No. 0, Special Issue, Available at SSRN: https://ssrn.com/abstract=4665

Timothy F. Bresnahan (Contact Author)

Stanford University - Department of Economics ( email )

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Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Scott Stern

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

Cambridge, MA 02142
United States
617-253-3053 (Phone)
617-253-2660 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Manuel Trajtenberg

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3640 9911 (Phone)
+972 3640 9908 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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