The Curse of Innovation: A Theory of Why Innovative New Products Fail in the Marketplace
36 Pages Posted: 5 Aug 2005
Date Written: June 2005
Highly innovative products fail in the marketplace at significant rates. In this paper, we offer a behavioral framework to explain this failure. We begin with the behavior change inherent in most innovations. We then add reference dependence and loss aversion, arguing that the typical consumer is endowed with the entrenched alternative and the typical developer is entrenched with their innovation. As a direct result, consumers tend to undervalue and developers tend to overvalue such an innovation relative to the existing option. This is the "curse of innovation" and it systematically increases the likelihood of failure for a highly innovative new product.
JEL Classification: M31, O31, O32, O33
Suggested Citation: Suggested Citation