FISHER, PETER ARMAS; PHD

                        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.


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