HARVARD UNIVERSITY, 1995
ECONOMICS, COMMERCE-BUSINESS (0505); ECONOMICS, HISTORY (0509); MASS
COMMUNICATIONS (0708)
Innovation in markets for systems products frequently takes the form of generational
change from an
established, inferior technology to a superior, incompatible technology. In
such transitions, positive
feedback between consumer adoption and component supplier entry can cause the
success or failure of
the new technology to hinge upon the achievement of a critical threshold of
market acceptance. Falling
short of the threshold results in a degenerative cycle of non-adoption and component
supplier exit,
causing the market to settle into a low-level equilibrium. Alternatively, achieving
the threshold results in a
cycle of self-reinforcing success through consumer adoption and component supplier
entry, causing the
market to settle into a high-level equilibrium. The advent of FM radio may prove
instructive as an example
of a generational transition in a systems product. The diffusion experience
of FM in its competition with
AM suggests that positive feedback between listenership patterns and radio station
entry may have
generated multiple high and low-level adoption equilibria, stunting the early
development of FM. Two
data sets, 43 geographic markets during 1967-1984 and 141 geographic markets
in 1975, are used to
answer five empirical questions that have generic counterparts in many other
systems markets: (1) Did
multiple equilibria contribute to FM's diffusion experience? (2) If so, how
costly would it have been to
move between low and high-level equilibria? (3) How large a gain in market size
would have resulted from
doing so? (4) What other exogenous factors contributed to FM diffusion?, and
(5) What effect did Federal
Communications Commission policy regarding simulcasting have on the rate of
FM diffusion? It is likely
that phenomena discovered in the study of FM radio have parallels in similarly
structured markets
undergoing technological change. In particular, in the absence of facilitating
strategic action, symmetric
inertia on the part of consumers and producers may impede the adoption of technologies
found to be
superior at high levels of adoption, but found to be inferior because of poorly-developed
supporting
infrastructure at low levels of adoption.
Social
Systems Simulation Group
P.O. Box 6904 San Diego, CA 92166-0904 Roland Werner, Principal Phone/FAX (619) 660-1603 |