The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1755-425X.htm

JSMA
4,4 Evolution of industries based on
systemic technologies
How demand environment influences firm
384 investment strategy?
Lalit Manral
College of Business Administration, University of Central Oklahoma,
Edmond, Oklahoma, USA

Abstract
Purpose – The extant “supply-side” frameworks of industry evolution fail to predict the
evolutionary patterns in industries based on systemic technologies. This paper aims to describe
the complex demand environment in industries based on systemic technologies and to explain how the
continuously evolving demand structure influences the choice and level of firm investments in
the above context.
Design/methodology/approach – The paper identifies a conceptual gap in the
“technology-centric” literature on industry evolution by conducting a detailed interpretive survey of
the literature that focuses on the demand-side determinants of firm- and industry-level technological
processes underlying industry evolution, and co-evolution of the technological system underlying an
industry and the consumer applications based on the same.
Practical implications – The paper provides a set of empirically verifiable mechanisms to explain
competing firms’ choice and level of investment under conditions of technological and demand
uncertainty in industries based on systemic technologies. On one hand, firms’ investments influence
the evolution of both the technological system(s) and their constituent components that underlie such
industries and, on the other, firms’ investments influence the consumption of the array of consumer
applications that are generated in these industries.
Originality/value – The theoretical explanation provided herein not only enhances the
understanding of the role of demand-side factors as determinants of rate and direction of
technological advances but also lies central to the understanding of the evolution of industries based
on systemic technologies. More specifically, the paper explains how the interaction between
continuously evolving demand structure in the downstream market(s) for consumer applications and
the technological components comprising the technological system influences competing firms’ choice
and level of investments.
Keywords Systemic technologies, Industry evolution, Firm investment strategy, Demand structure,
Industrial sociology, Organizational development
Paper type Conceptual paper

Journal of Strategy and Management
Vol. 4 No. 4, 2011
pp. 384-403
q Emerald Group Publishing Limited
1755-425X
DOI 10.1108/17554251111181025
Introduction
The literature on industry evolution explains that industries and/or markets are not
created by “technology push” alone or for that matter “demand-pull” (e.g. Rosenberg,
1976a, b; Rosenberg and Mowery, 1979; Scherer, 1982). Additionally, it explains the
This paper is based on the author’s dissertation research at Columbia Business School, Columbia
University. The author highly appreciates the guidance of thesis advisors – Richard R Nelson
and Kathryn Harrigan – and valuable inputs by other committee members – Ashish Arora,
Ron Adner, and Bhaven Sampat – in shaping the thesis.
origin of a new industry to the new correspondence (or fit) between a technology and Systemic
its co-evolving context brought about by the supply-side and demand-side investments technologies
of firms (e.g. e.g. Rosenberg, 1976a, b; Dosi, 1982; Clark, 1985; Ruttan, 1997, 2001;
Rosenberg and Mowery, 1979). The “life cycle” theories based on the concept of natural
trajectories, technological imbalance, and inducement mechanisms (Rosenberg, 1976a,
b; Nelson and Winter, 1982; Dosi, 1982) provide both compelling evidence and
convincing mechanisms to explain technological change that underlies industry 385
evolution. Even though the literature acknowledges the role of demand side factors
(e.g. Schmookler, 1966; Rosenberg, 1976a, b; Scherer, 1982; Malerba, 1985; Ruttan, 1997;
Adner and Levinthal, 2001; Adner, 2002) most empirical analyses continue to explain
the evolution of various industries as a supply-side phenomenon (e.g. Gort and
Klepper, 1982; Agarwal and Gort, 1996; Klepper, 1996, 1997, 2002a, b; Geroski, 2003).
While the “technology-centric” explanation of industry evolution does a fairly
satisfactory task of explaining the evolution of conventional industries – supported by
a single technological trajectory and offering a homogenous industry product – it
proves inadequate to the task of explaining the evolution of industries based on
systemic technologies. The technological system underlying the latter comprise
several components – each associated with a unique technological trajectory – and
support an array of complements – each associated with a unique demand curve.
Hence, unlike conventional industries where industry take-off can be explained, and
often rightly so, in terms of technological break-through and introduction of novel
products – in response to firms’ supply-side investments – the same does not hold true
in industries based on systemic technologies. The complexity of the technological and
demand environment in such industries (e.g. telecommunications services) therefore
warrants a distinct theoretical explanation for their co-evolution along their
evolutionary path. This paper focuses on a specific gap in the extant literature on
industry evolution that has possibly prevented a comprehensive explanation of the
evolution of industries based on systemic technologies. This gap concerns the
endogenous relationship between the continuously evolving demand structure and
firm investment strategy[1]. How does the continuously evolving demand structure
influence the choice and level of firm investment strategy?
To address the above gap in the literature we need to unravel the evolutionary
processes involved in the complex interaction among the state variables concerning
technology, market and firm characteristics along the time path of industry evolution.
This paper provides a theoretical description of the complex demand environment in
industries based on systemic technologies and explains how the continuously evolving
demand structure influences the choice and level of firm investments in the above
context. This novel theoretical explanation not only addresses the conceptual gap in
the “technology-centric” literature on industry evolution but also lies central to our
understanding of the evolution of industries based on systemic technologies. In such
industries the dynamically evolving demand environment induces problemistic search
– by the firms – for new components that in turn influences the evolution of systemic
technologies, technological systems and the accompanying industrial markets. We
therefore seek to address a specific question: controlling for the self-generating nature
of systemic technologies, how does the continuously evolving demand structure
influence the choice and level of firm investment strategy?
JSMA The evolution of industries based on systemic technologies does not lend itself to a
4,4 rigorous analysis using framework(s) provided by extant theories of industry
evolution. First, the inherent focus on technological evolution to explain the
endogenous relationship between market structure and firm investment strategy
neglects the implications of the continuously evolving demand structure. To what
extent can we attribute the evolution of a technological system (e.g. the internet) and
386 the various associated market segments (e.g. internet access, electronic trading
markets, and gaming portals) exclusively to firm investments in R&D? One could
argue that the presence of certain esoteric technologies provided incentives to firms to
invest in creating applications for the same. Conversely, one could argue that
awareness of potential demand provided an incentive for firms to invest in technology
development. The internet is a good example of the lag in the evolution of technology
and its market. The internet (or Arpanet 1) was invented in the 1960s to merely connect
computers. It took the next 20-25 years for it to be developed into a commercial venture.
On the other hand voice over internet protocol (VoIP), an internet based
communications technology did not develop its full set of characteristics for about
ten years until it was actually employed to provide voice transmission services by
some carriers.
Second, the simplistic assumptions concerning demand structure employed by
various models fail to capture the complexity of the demand environment in such
industries. For instance, the demand for various components in the upstream business
markets is driven by the demand for the end-user base product and its complements
(embodying the technological system) in the downstream markets. Consequently,
consumer demand in the downstream market for complements influences the
dynamics of technological competition among firms offering components in the
upstream business markets. For example, the relative consumer demand for desktop
personal computers vis-à-vis notebook computers influences the demand for the
specific micro-processor used in each type of computer. Hence, any analysis of dynamic
technological competition in the micro-processor industry should either include such
effects or control for them.
This paper focuses on the endogenous relationship between continuously evolving
demand structure and temporally heterogeneous firm investment strategy in the
context of industries based on systemic technologies. The rest of the paper is organized
as follows. The next section reviews the literature on demand-side determinants of
technological change to identify the conceptual gaps in the literature. Subsequently, we
provide brief insights into the salient features of industries based on systemic
technologies to explain how such industries differ from conventional industries – that
are based on single technological trajectories – and therefore warrant a distinct
theoretical explanation for their evolution. The subsequent section provides an
analytical explanation of the complex demand environment in industries based on
systemic technologies. More specifically, it describes how the lag in the co-evolution of
the technological system underlying an industry and the consumer applications based
on the same provide the signals for firms to make the relevant investments. The
penultimate section develops a concept of systemic demand to explain how the demand
environment provides a context for firms’ choice and level of investments. It provides a
set of empirically verifiable mechanisms to explain competing firms’ choice and level of
investment under conditions of technological and demand uncertainty in industries
based on systemic technologies. The concluding section briefly discusses this paper’s Systemic
theoretical contribution, motivation for future research, and empirical implications. technologies
Demand-side determinants of technological change and industry evolution
Product market demand – along with technological opportunities and appropriability
conditions – is one of the fundamental determinants[2] of inter-industry difference in
R&D investments and/or technological innovation (Levin et al., 1987; Cohen and Levin, 387
1989). Further, recent developments have brought attention to the role of size and
structure of demand in explaining the inter-industry difference in the rate and direction
of technological change (Malerba et al., 2007). Finally, the variation in demand
conditions across industries result in different incentive regimes for investing in
innovation by competing firms resulting in inter-industry differences in innovation
(Cohen and Levin, 1989). First, markets that are large and/or grow at a higher rate
provide greater incentives for competing firms to pursue innovation because of the
higher probability of recouping the R&D investment towards reducing unit cost
(Schmookler, 1962). Second, markets characterized by elastic demand provide greater
incentive for firms to invest in process innovation (Kamien and Schwartz, 1970), while
product innovation would be higher in markets characterized by inelastic demand
(Spence, 1975).
Schmookler’s (1962, 1966) seminal work, based on his observations in the context of
capital goods industries, explained how “demand-pull” rather than “supply-push”
contributes to the evolution of technology. The basic assumption underlying
Schmookler’s arguments is that at any time a common pool of scientific knowledge and
technological capability exists uniformly to satisfy industrial demand. It is therefore
demand, which dictates how various industries utilize the common pool of scientific
and technological resources in conjunction with their complementary investments in
R&D. However, later researchers demonstrated using case studies (e.g. Rosenberg,
1974), statistical analysis (e.g. Scherer, 1982), and a combination of the two (e.g. Walsh,
1984) to consensually conclude that both demand and supply side factors influence the
evolution of technology.
Malerba (1985) shows how the differential evolution of demand structure in the
semi-conductor industries (across US, Europe, and Japan) explains inter-industry
(across the three regions) differences in the rate and direction of technological
evolution. Accordingly, the US became a dominant player in semi-conductors, having
started at the same time as Europe and Japan. While the semi-conductor industry in the
UK continued to be driven by electronics consumer goods demand, after the transition
from the transistor to the integrated circuit period, that in the US was driven by
computer demand and public procurement (for military use). This translated into
different manifestation of requirements by various segments of demand. Military
demand stressed reliability and performance as opposed to the primacy accorded to
price by civilian demand. The diversity of the structure of demand during the various
periods of the evolution of the semi-conductor industry resulted in different levels of
competitiveness of the semi-conductor manufacturers in these countries. The origin of
the three distinct eras or technological regimes in the evolution of the semi-conductor
industry corresponds to three radical innovations: the transistor (1947), the integrated
circuit (1959), and the microprocessor (1971). Hence, the temporal and inter-industry
difference in the demand structure explain the temporal and inter-industry difference
JSMA in the industry structure during the three eras and across the three markets – over and
4,4 above other explanations.
Adner and Levinthal (2001) explain the effect of demand heterogeneity on the strategic
choice of innovating firms to invest in product or process innovation during the course of a
technology’s development. Accordingly, during the initial stages firms compete in
product and process innovation simultaneously to enhance consumer utility (on the two
388 parameters of price and performance). Hence, consumer demand and technology
co-evolve to a point whereupon the increase in consumers’ utility as a response to firm
investment tends to plateau. However, to the extent consumers differ in terms of the utility
they derive from a product of certain characteristics at a certain price, there always will be
residual returns to investment in innovation in a competitive market.
Adner (2002) and Adner and Zemsky (2005) provide an alternate “demand-side”
explanation for the emergence of disruptive technologies. A firm’s incentive to invest in
R&D along a particular technological trajectory is contingent upon consumers’
heterogeneous valuation of performance improvement. Hence, there will always be
some consumers within the market segment who would prefer further improvement in
the current technology. This opens the possibility of a lower-priced technology, albeit
with a lower performance level to capture such consumers. Hence, both the new
technology and current technology exist side by side until the new technology
overtakes the current technology.
Malerba et al. (2007) explain how demand heterogeneity due to experimental users
induces the introduction of radical technology in a concentrated industry with a dominant
design. They do so in the context of the evolution of computer technology. Basically, new
entrants replace dominant incumbents by leading the charge on technological
innovations that initially satisfied only a small portion of the existing market.
In summary, even though the “demand side” literature in strategy provides
compelling qualitative evidence for the effect of variation in demand structure on the
differences in rate of technological change across industries and within industries over
time it is characterized by a few shortcomings. One of the major shortcomings is that
most analytical accounts of industry evolution treat the demand structure as
exogenous. Despite the recent advances in understanding the concept of demand-side
learning (e.g. von Hippel, 1988; Bresnahan and Trajtenberg, 1995; Lerner and Tirole,
2002) the same has not been incorporated into the analytical models of industry
evolution (Manral, 2010a). Until researchers figure out how to model the complex
processes wherein firms reduce their demand-side uncertainty through demand-side
learning, typical models of industry evolution would continue to treat demand
structure as exogenous.
The other major shortcoming is that the literature does not explore the endogenous
relationship between dynamically evolving demand structure and temporally
heterogeneous firm investment strategy. First, the literature does not provide
empirically verifiable and/or generalizable mechanisms to explain the demand-side
determinants of firm investment strategy. Second, it also does not explain how firm
investment strategies influence the demand structure.

Industries based on systemic technologies

Industries based on systemic technologies are characterized by increasing returns to
scale on the supply-side and increasing returns to adoption on the demand-side
(e.g. Katz and Shapiro, 1985; Arthur, 1989; Bresnahan and Trajtenberg, 1995). On the Systemic
supply-side, these industries are characterized by high fixed costs and low marginal technologies
costs of production. On the demand-side, the products or services offered by these
industries are characterized by strong network effects and switching costs for users.

Systemic technologies 389

The sheer complexity of task environment in today’s world requires solutions based on
products (or services) that embody complex technologies. The delivery of such
products necessitates assimilation of many technological components into a coherent
system. This system of components is referred to as a technological system. Hence, a
systemic technology can be defined as a technology embodied in a system of
components, with each component supported by a separate technological trajectory.
The systemic nature of such technologies can therefore be attributed to the diverse
technological trajectories – originating in totally different fields of science – that
underlie the various constituent components (e.g. Garud and Kumaraswamy, 1995).
For instance, the most common technological system that affects our daily lives is the
personal computer. The components that comprise a PC – such as a microprocessor or
an operating system – are based on very different technologies. Many technologies
underlying products used by individual and business consumers alike – for instance in
communication, computation, transportation, and many more – are therefore systemic.

Markets in industries based on technological systems

Industries which offer products/services based on a system of technologies support
two types of markets:
(1) consumer markets for the various products embodying the technological
system; and
(2) business markets for the various components, which constitute the
technological system.

For instance, in the telecommunications sector consumer markets comprise the market
for telecommunications services such as long-distance voice telephony or mobile
telephony. The upstream business market for components is the wholesale market for
communications services and various telecommunications equipment (required for
providing such services). Similarly, in the case of personal computer the consumer
market is that for the PC while the business market is that for the components such as
microprocessors, memory chips, and so on.
The downstream consumer markets sell the basic industry product and its various
complements. It is important to distinguish between components and complements at
the outset. A component such as a memory chip or a telecommunications network
element goes into the manufacture (or provision) of the final product. It does not
provide any end-user functionality and hence is not generally sold in consumer
markets. On the other hand, a complement sells in the downstream consumer
market along with the basic industry product. For instance, an individual possessing a
personal computer also purchases various complements to the operating system
software, which are called application software.
JSMA Evolution of industries based on systemic technologies
4,4 The evolution of industries based on systemic technologies does not always conform to
the evolutionary patterns described in the literature (e.g. Abernathy and Utterback,
1978; Tushman and Anderson, 1986; Klepper, 1996, 2002a, b; Ericson and Pakes, 1995;
Pakes and McGuire, 1994; Agarwal and Gort, 1996; Bayus and Agarwal, 2007). These
industries are often characterized by random fragmentation and convergence [of the
390 market segments] through their evolutionary path[3] (e.g. Sutton, 1998). Consequently,
such industries witness multiple waves of entry, investment surges and exit along their
evolutionary path unlike the conventional industries described in the extant literature
on industry evolution. This implies that variation in competitive conditions along with
the rules governing entry, investment, and exit vary differently along the evolutionary
path of an industry based on systemic technologies than it would in the case of a
conventional industry.
The analysis of the evolution of industries based on systemic technologies is
complex due to the following reasons. First, basic demand conditions – of increasing
returns to adoption and network externalities – in such industries give rise to market
failure and therefore do not always support market-based solutions or strategic choices
(e.g. Katz and Shapiro, 1985; Arthur, 1989; Liebowitz and Margolis, 1995; Noda and
Collis, 2001). Second, the lack of one-to-one mapping between a technological system
and an industry boundary in many empirical contexts poses problems for both static
and dynamic models of industry evolution (e.g. Ruttan, 1997). Third, the analysis is
further complicated due to the continuous evolution of the technological and demand
environment in response to firms’ endogenous investments on the supply-side
(e.g. Dosi, 1982) and demand-side (Adner and Levinthal, 2001) respectively. This is
because the choice and level of firms’ investment strategy is itself determined in the
context of a continuously evolving industry.
The evolution of such industries therefore needs to be understood in terms of
co-evolution of the underlying technological and demand trajectories along with firms’
investments instead of the extant one-sided supply-side or demand-side analyses. The
history of evolution of various general-purpose technologies provides both types of
examples wherein either the technology or potential demand existed before the other
emerged (e.g. Bresnahan and Trajtenberg, 1995; Moser and Nicholas, 2004; Rosenberg
and Trajtenberg, 2001). Although the empirical literature on industry evolution
provides both stylized facts and phenomenological description of the co-evolution of
technology and demand, a theoretical description of the same still eludes us. What are
the forces that underlie the co-evolution of technological innovations and demand shift?

Demand environment in industries based on systemic technologies

We earlier defined systemic technology as one that is embodied in a system of
components. The supply-side literature on industry evolution purports to explain the
evolution of such industries in terms of the introduction of new components to the
exclusion of the demand environment for various applications that are based on these
systemic technologies. The literature argues that the specific pattern and direction of
search for new components (or techniques, or processes) is guided both by the nature of
the technology itself and the context in which a particular solution must fit (e.g. Dosi,
1988).
 Natural trajectories are sequences of innovations whose direction and objective are Systemic
defined by a specific set of technical opportunities and constraints, in turn triggered technologies
due to the realization – by the investing firms – of existing and potential constraints
that create technological disequilibria (Rosenberg, 1976a, b). On the other hand firms
invest to search for new components, techniques, and processes within a given context.
The “context” is the problem which requires a solution; “form” is the solution to the
problem; and “fit” is a property of the interaction between form and context, that is, 391
how well a design satisfies a set of requirements thrown up by a particular use (Clark,
1985).
We argue that the “context” of the firm search – the problem that requires a
solution – can be conceptualized as the demand environment. It can be categorized
along two dimensions – technological and consumer (e.g. individual or business)
preference dimension. Systemic demand defines the demand environment in terms of
the technological requirements that a suitable “form” would need to adhere to in order
to provide a good fit[4]. Market demand defines the demand environment in terms of
the basic needs and wants of the consumer (socio-economic, and/or psychological
dimension) that a suitable “form” would need to adhere to in order to provide a good
“fit”.
The factors that influence market demand are widely known. These include
macro-economic (e.g. inflation), psychological (e.g. likes or dislikes), social (e.g. social
restrictions), and organizational (e.g. price, firm advertising strategy) constructs.
However, the demand side literature that purports to explain technological change
ignores systemic demand and its drivers[5] (e.g. Gupta and Lehmann, 2003). Systemic
demand can be conceptualized as being influenced more directly by the interaction
between the technological and market opportunities. Thus, systemic demand defines
the relationship between market demand and the nature of technology (Adner, 2002;
Adner and Levinthal, 2001).
The demand environment is not static but dynamic. In addition to the cumulative
and self-generating nature of the technology, the context of the firm search also
changes continuously. It is important to understand that the evolving nature of the
demand environment poses its own set of problems for investing firms, thereby
necessitating the dynamic view of problem solving. Hence, the treatment of the context
of firm search processes as static whereby firms invest to solve a known problem belies
empirical reality. There exists a need to provide a mechanism to explain the general
relationship between technology and its demand environment and how the lagged
co-evolution of the two provides investment incentives to firms.
The dynamic nature of the demand environment serves to reinforce or further
aggravate the imbalance in the technological system caused by the self-generating and
cumulative nature of the technology. Thus, technological innovation needs to be
understood as being induced not merely by the technological imbalance in the
evolution of complementary components or processes (a supply side phenomenon) but
the lag in the co-evolution of technology and its demand environment. The
conceptualization of the lag as “systemic demand” provides a compromise between the
two orthodox positions that supply-side or demand-side factors underlie technological
evolution, to the exclusion of the other.
At any stage, this lag can be conceptualized as “lack of fit” or “gap” between a
technology and its demand environment, which firms seek to overcome by investing in
JSMA developing the technological or demand trajectory. For instance, a satellite telephony
4,4 system may not be suitable to service a profitable market segment that is currently
served by another system (say mobile telephony system) due to the extremely high
operating costs of the former. However, the knowledge of the existence of a profitable
market segment provides incentives to investing firms to develop components that
would make it possible to deploy satellite telephony system to serve the existing
392 market segment currently serviced by mobile telephony system. The gap is the set of
missing components in the technological system (satellite telephony system) that
would bring down its operating costs to enable firms to profitably deploy satellite
telephony system to serve the existing market segment or missing complementary
applications (of satellite telephony) that would enables firms to deploy it in a newly
created market segment.
The lag in the co-evolution of technological and demand trajectories introduces a
“constraint”. This constraint provides a “compelling and obvious” signal to firms to
invest in complementary components or complementary products. The inducement is
due to the importance for investing firms that the outcomes of their investment provide
a good fit with the evolved context[6]. The lag is basically the gap between the features
that a particular technology can support in its present state and that desired by the
consumers, which also evolve over time. These signals are conceptualized as an
extension of Rosenberg’s (1976a, b) “inducement mechanism” in the context of
manufacturing industries wherein the pressure to innovate originates in the
technological system itself. Rosenberg (1976a, b) explains that the enhanced quality
of some components or processes vis-à-vis others, exerts pressure for the improvement
of latter, as not doing so creates a technical imbalance. The resulting technological
disequilibria create incentives for a “compulsive” sequence of changes, referred to as
inducement mechanisms. Rosenberg’s “inducement mechanisms” are the technological
imbalance that occurs due to lop-sided advancement at the systemic level either due to
the introduction of superior components or a breakthrough in some components but
not others, and so on.
The need to modify Rosenberg’s “inducement mechanism” can be explained as
follows. First, though Rosenberg provides numerous examples[7] of “inducement
mechanism” wherein technological imbalance – created due to superior quality of
some components or processes over others in a system of interdependent components
and processes – provides stimulus for improvement in the inferior components or
processes, he does not specifically characterize the “compelling and fairly obvious
signal” thrown by technological imbalance in terms of an empirically verifiable
mechanism. Second, by conceptualizing the search for better alternatives as triggered
by “internal compulsions” – a characteristic of the nature of complex technologies[8] –
to the exclusion of any role of the variation in demand structure Rosenberg’s
“inducement mechanism” belies empirical reality[9] (Dosi, 1997).
The economic incentive to innovation[10], however diffuse it may be, is due to the
existence or potential of a demand trajectory corresponding to the technological
trajectory developed. Although supply side arguments suggest that during the initial
phases of the technology, because users are totally unaware of the potential usages, a
particular technology develops due to the inducement provided by the nature of the
technology itself. However, studies of the development of such general purpose
technologies as electricity, computers, telecommunications, provide insights into how
each of these technologies developed during the initial stages due to the interaction Systemic
between developers on one side and sophisticated/experimental consumers or early technologies
adopters on the other. The critical point worth noting is that it falls to the market to
send a “compelling and fairly obvious signal” to the potential suppliers of components
and services. Market demand and firm investment strategy feed back onto each other,
but, how?
Consumers learn about what they want, or need, and producers learn to innovate (Teubal, 393
1979, cited in Clark, 1985).
Clark’s (1985) study of interaction between market demand and technological
evolution, from an evolutionary perspective, shows how feedback from the market
influences technical development and vice versa. It is due to the feedback from the
market that firms realize the technological imbalance in the system. It therefore
becomes imperative to consider the influence of market conditions, or more specifically,
the demand environment on the relative allocation of firm search efforts in models of
industry evolution. However, in order to do so, we need to not only provide a
convincing mechanism to empirically verify how market demand impinges on firm
investment strategy but also to explicate the processes underlying the proposed
mechanisms.

Systemic demand: choice and level of firm investment

How do firms understand ex-ante whether a particular technology would satisfy the
consumer preferences represented by a particular demand trajectory? The choice of a
particular technological or demand trajectory is path dependent. It is influenced by the
investing firms’ technological capabilities and demand side competence respectively.
On the other hand, systemic demand influences the choice of investment strategy and
the level of investments. More specifically, they are influenced by the “compelling and
obvious signal” provided by the systemic demand for either components or
complements.
Consumers do not choose particular technological trajectories to the exclusion of
others. Hence, they do not (directly) decide the winners among several competing
technological trajectories. They merely choose among certain functional attributes (of
the products) and the price at which such attributes are available[11]. Moreover, the
products embody the entire technological system and not a single technological
trajectory. To that extent, market demand [for specific features at certain prices] alone
cannot explain the rate and direction of the evolution of technology and industry[12].
The concept of systemic demand explains how market demand influences firm
investment strategy. Systemic demand induces innovation, leading to new components
or new complements, due to inadequacy and redundancy of the technological system
with respect to a demand environment. Rosenberg’s “inducement mechanism”
represents the need to correct the technological imbalance created by internal
compulsions or the nature of the technology itself. In contrast, systemic demand
explains how the “compelling and obvious signal” for firms to invest originates from
the interaction between the nature of technology and market demand. While
technological imbalance provides incentives to search for alternate techniques,
components, or processes, systemic demand provides incentives to search for
components and/or complements in response to (or lack of) market demand.
JSMA Systemic demand is a typical property of industries based on systemic technologies.
4,4 It is explained in terms of two concepts: bottleneck and redundancy[13] (e.g. Pannone,
2001). These are outcomes of “lack of fit” between an evolving technological system
and its co-evolving demand environment at any period along the evolutionary path of
an industry. Bottleneck explains the inability of the technological system – in its
current state – to satisfy market demand. It manifests itself in such forms as capacity
394 constraint or speed constraint or even efficiency constraint and so on. Redundancy
refers to such cases wherein the technological system is more advanced than is
required to satisfy the current state of market demand[14]. It manifests itself as excess
capacity, speed redundancy, and so on. Thus, systemic demand represents the gap
between the technology and the technological dimension of the demand environment.
Systemic demand manifests itself as need for components or complements. While
the need for components are driven by bottleneck that for complements is driven by
redundancy. For instance, the heavy market demand for telegraphic messages exposed
a bottleneck in the telegraphic system in terms of its ability to transmit only one
message at a time. Thus, the systemic demand – imposed by the market demand for
telegraphic messages – for a larger number of telegraphic messages that could be
transmitted simultaneously led to a series of inventions that made it possible to send
multiple messages over telegraphic wires, also referred to as multiplexing. Now, this
bottleneck could have been removed by firm investment in capital assets, that is,
additional capacity in terms of more telegraphic wires but that would not have
satisfied the systemic demand.
Firm investment to remove the bottleneck in the system implies developing
components that would enable the technological system “match” the required level.
This required level is explained in terms of the technological dimension of the demand
environment. The inability of a technological system to match the technological
dimension of the demand environment causes a bottleneck. This bottleneck is
attributable to the presence or absence of a component or a set of components that
constitute the technological system. The removal of a “bottleneck” enables the
technological system to “fit” the technological dimension of the demand environment
and thereby provide firms with an opportunity to generate revenue.
Firms invest to develop components in order to remove “bottleneck” in the
technological system and generate revenues. This bottleneck can be “removed” by
either improving the performance of one or more existing components, replacing
existing components with one or more components, or introducing altogether new
components. Hence, firms invest to develop a technological trajectory to that state
wherein it would enable the technological system to satisfy the standard imposed by
the technological dimension of the demand environment. The identified technological
trajectory, which is a candidate for investment, is the one that underlies that particular
component due to the (or lack of) technological system being unable to meet the
standard of the technological dimension of the demand environment. This led to
proposition 1:
P1. The choice and level of firm investments which underlie technological
innovation are guided by the bottleneck in the technological system.
“Redundancy” of the technological system induces firms to invest in developing
applications that the system could provide to either create or increase market demand.
Redundancy of the technological system implies a situation wherein the current state Systemic
of technology exceeds the requirements of the technological dimension of the demand technologies
environment. This basically implies that too few applications based on the
technological system do not justify its adoption. In cases where firms do adopt such
technological systems, the demand for products or services embodying the particular
system may not provide enough incentives to offer such products or service, and the
revenues are less than the cost incurred in operating the system. In such cases, the 395
“redundancy” of the system provides incentives to firms to invest in complements.
Two more types of redundancy affect the technological system differently. In these
cases, redundancy arises due to the inability of the consumer preference dimension of
the demand environment to match the supply-side potential of the system. First, a
problem of scale arises in instances where systems are constrained by issues of
minimum scale. In such cases, redundancy occurs when the magnitude (size) of the
demand is much lower than the capacity of the system. For instance, redundancy of
scale arises when a telecommunications network able to handle (say) 100
conversations/minute actually services only 15 conversations/minute. Second, a
problem of scope arises when the type or variety of actual demand lags the potential of
an installed system to satisfy a multi-variegated nature of demand. For instance, a
redundancy of scope arises when consumers use high end PCs only for word
processing when the system is able to provide all sorts of services ranging from
multi-media to digital imaging and so on. Similarly, a high-powered microprocessor or
a high bandwidth render the system redundant if the demand does not match the
capability of the system. Complements drive up both the scale and scope of demand by
inducing consumers to use them. This led to the formulation of proposition 2:
P2. The choice and level of firm investments which underlie evolution of the
demand structure are guided by redundancy of the technological system.
Table I summarizes the theoretical arguments in this section to explain the
heterogeneity in firms’ investments in terms of different types of demand and/or
technological uncertainties, which in turn correspond to the prevailing demand
environment.

Conclusion
Evolutionary accounts of firm investment strategy and industry development
primarily emphasize on the non-ergodic technological change brought about by firms’
R&D investments (Abernathy and Utterback, 1978; Nelson and Winter, 1982; Clark,
1985; Klepper, 1996). Basically, the technological change that induces industry
evolution is explained in terms of the firm search behavior (for new information on
technical alternatives), uncertainty (about the outcome of R&D investment), and the
consequent learning (which is stored as organizational knowledge and serves as
reference for future search).
The stylized and formal evolutionary models of industry evolution that purport to
explain technological change and thereby industry evolution – in terms of firms’
investment strategy – account for the endogeneity of firms’ investments with both
technological change and industry structure. However, barring a few exceptions
(e.g. Manral, 2010a), these models typically underplay the role of demand-side
determinants of firm (investment) behavior. In other words, they ignore the influence of
 4,4

396

Table I.
JSMA

How the demand

investment strategy?
structure influences firm
Intensity of technological Investment strategy to Nature of demand Investment strategy to
Nature of demand (systemic/ uncertainty that affects firm develop technological uncertainty that affects firm develop demand-side
market) (R&D) investments competence (advertising) investments competence

Systemic demand for new High technological Firms compete in R&D High demand uncertainty as Advertising investments
components and uncertainty at the system investments to acquire consumer preferences are not (informative advertising)
complements level technical competences, articulated underlie evolution of new
which underlie evolution of demand trajectories (due to
new technological formation of new concepts)
trajectories and remove to match the new products
bottleneck in the system and remove redundancy in
the system
Systemic demand for new Low technological Firms compete in capital High demand uncertainty as Advertising investments
complements (to the uncertainty at the system investment to develop consumer concepts are not (informative advertising)
products based on the level superior production well developed underlie fragmentation of
technological system) competences new demand trajectories
(due to) and match them to
newly developed
complements thereby
removing redundancy in the
system
Systemic demand for new High technological Firms exploit their technical Low demand uncertainty as Advertising investments
components (to replace the uncertainty at the competences to compete in consumer preferences are (persuasive advertising)
less efficient ones) technological trajectory R&D investments along well articulated strengthen existing demand
(component) level established technological trajectories
trajectories and remove
bottleneck in the system
Product market demand (for Low technological Firms compete in capital Low demand uncertainty as Advertising investments
specific features at certain uncertainty at both system investments by acquiring consumer preferences are (persuasive advertising)
prices) and component level complementary assets to well articulated strengthen existing demand
strengthen/consolidate trajectories
production competences
demand side learning on firm investment strategy even under conditions of temporally Systemic
heterogeneous demand uncertainty. technologies
Theoretical contribution
This paper provides a theoretical explanation of the endogenous relationship between
the continuously evolving demand structure and firm investment strategy in the
context of industries based on systemic technologies. It conceptualizes the evolution of
397
industries based on systemic technologies as occurring due to the new correspondence
between a technological system and the co-evolving demand environment [for the sets
of products based on the system]. The analysis builds on the premise that
understanding the context (of technological innovation) is as critical as understanding
the nature (of the technology) to understand the pace, pattern, and direction of
technological innovation. Further, the analysis also factors in the extant explanation of
the endogeneity of technological opportunity and product market demand contained in
the literature. To facilitate the above explanation it conceptualizes two types of
correspondences between technological opportunities and market demand –
bottleneck and redundancy. Finally, this paper provides a set of empirically
verifiable mechanisms to explain competing firms’ choice and level of investment
under conditions of technological and demand uncertainty in industries based on
systemic technologies.

Future research
The theoretical arguments contained in this paper provide the missing rationale in
both the endogenous theory of dynamic market structure (e.g. Nelson and Winter, 1982;
Manral, 2010b) and endogenous growth models (e.g. Abramovitz, 1956; Solow, 1957;
Romer, 1986). First, by addressing one aspect of the endogenous relationship between
demand structure and firm investment strategy this paper draws attention to the other
unexplained aspect of the endogenous relationship – in a potential theory of
endogenous market structure (Manral, 2010b). The other aspect of the relationship
between continuously evolving demand structure and firm investment strategy is the
feedback effect of firm investment strategy. How does temporally heterogeneous firm
investment strategy influence the demand structure and thereby the market structure?
Although this question provides a fertile area of inquiry for researchers it awaits both a
theoretical explanation and empirical validation.
Second, this paper draws attention to endogenous growth models that explain the
contribution of technology to demand growth and thereby economic growth in
considerable detail, they do not adequately explain the role of demand growth on the
evolution of technology (e.g. Abramovitz, 1956; Solow, 1957; Romer, 1986). Although
later developments in the literature on technological change as a source of economic
growth have focused on the systemic nature of a number of technologies (e.g. Arthur,
1989; Katz and Shapiro, 1985; Bresnahan and Trajtenberg, 1995), a large number of
issues remain unresolved. For instance, the literature explains “self-generating”
recursiveness, a fundamental characteristic of systemic technologies, in terms of as
inducement mechanism (Rosenberg, 1976a, b) and/or innovational complementarities
(Milgrom et al., 1991). In doing so, it either ignores the role of consumer demand in the
downstream markets or subordinates it to that of the above. In other cases, the
JSMA demand-side determinants of the market structure in the downstream markets for
4,4 complements are treated as exogenous.

Empirical implications
The empirical methods featured in the literature on industry evolution fall short when
it comes to addressing the issues raised in this paper. First, two-stage models of
398 industry evolution (featuring pre-entry investment and post-entry competition) prove
unattractive as analytical/ empirical tools for exploring the dynamics of firms’
strategic choices concerning various types of investments. The static nature of such
models does not capture a substantial part of information in a panel data setting.
Hence, they do not allow us to capture the temporal heterogeneity of firm investment
required to address the above research question. Second, studies based on dynamic
equilibrium models explain industry evolution in terms of a temporally homogeneous
state variable that is acted upon by the selection environment. These models do not
satisfactorily capture the evolutionary processes of industries based on systemic
technologies – which exhibit multiple waves of entry, investment surges, and exit
along their lifecycles. Basically, in such models the logic of economic selection remains
constant throughout the industry lifecycle.
The empirical validation of the theoretical description provided in this paper
requires conducting extensive longitudinal analysis of the co-evolution of specific
technological systems and the various products based on the same. One of the major
empirical challenges in analyzing the evolution of industries based on systemic
technologies – in terms of firms’ investment strategy that influences both the
underlying technological system and the demand environment – is the endogeneity of
various choices among themselves and with the structural context. For instance, the
effects of firms’ demand-side investments, if at all considered, are masked by the larger
effects of firms’ R&D investments (on the evolution of technological system and
thereby the industry structure). Consequently, testing the endogenous relationship
between firms’ demand-side investment strategy and demand structure requires us to
control for the effect of firm investment strategy on technological change and policy
changes and vice versa. One option could be to find a natural experiment wherein the
industry can be considered to evolve largely due to the influence of demand-side
factors.
The telecommunications services industry provides an ideal research setting.
Various types of telecommunications services offered across several downstream
markets are based on the complex telecommunications systems. The demand-side
investments of telecommunications services providers influence the demand for
various types of services by influencing the market-size (number of consumers) and the
average individual consumption (e.g. minutes of conversation or data download). On
the other hand, the telecommunications equipment suppliers invest in product
development to facilitate the creation of demand for various types of
telecommunications services. As we explained earlier, even though the
telecommunications (technological) system and the various types of consumer
applications (telecommunications services) co-evolve there is a lag between the two
sides. This lag results in bottlenecks or redundancies depending upon whether the
technological side is lagging the demand-side or vice versa. The theoretical arguments
provided in this paper can therefore be validated in light of (say) the role of markets
(for various types of telecommunications services) in allocating resources to the Systemic
exploration of various technological opportunities. We earlier explained in this paper technologies
the technological opportunities are endogenous to the demand conditions across the
downstream markets for various consumer applications. In a single industry setting it
would be impossible to separate out the effect of technological or supply-side
investments – to develop various products – from that of demand-side investments –
to influence the consumption of services based on these products. However, it is 399
possible to do so in the above example since the two types of investments are made by
two different sets of firms in two different industries.

Notes
1. Studies, which explore how the cumulative and self-generating nature of the technology
itself explains the pattern and direction of innovation, are categorized as supply side
explanation of technological innovation whereas those that explain how the context defines
the pattern and direction of technological change are classified as demand side explanation.
2. Market structure and firm size also explain technological change albeit to a lesser extent
(Cohen and Levin, 1989). According to Cohen and Levin (1989) the undue emphasis on market
structure and firm size (in the literature) over the “fundamental” determinants of
inter-industry differences in innovative activity may be attributed to the following reasons.
First, the impetus could have been provided by the influence of what is now regarded as
Schumpeter’s hypotheses. Second, it could probably be due to the fact that the “fundamental”
constructs tend to change more slowly and are difficult to operationalize and measure.
3. Sutton (1998) explains how increased fragmentation (convergence) of industry along its
evolutionary path corresponds to reduced (increased) concentration. First, the reported
four-firm concentration ratio for SIC 35731 (Electronic Computers) fell from 75 percent in
1972 to 49 percent in 1977 as this industry’s product lines fragmented into mainframes,
minicomputers, etc. Second, the evolution of aircraft industry during the 1930s wherein
biplanes as separate market segment disappeared as increasing design advances in
monoplanes satisfied buyer preferences for lower unit cost of carrying passengers.
4. The fit between “form” and “context” is actually the fit between a particular technological
trajectory and the technological dimension of the demand environment that it could possibly
satisfy. This fit could be measured ex-post in terms of (say) the efficiency of the technology.
For instance, it may not be efficient to use a very high-end micro-processor to power simple
calculators because it provides more than what is required by its context. It is another matter
that a $1,000 micro-processor may not be suitable for a simple $15 calculator.
5. While researchers have examined the influence of product market demand on technological
evolution and through it the eventual evolution of market structure, they have either ignored
the effect of systemic demand or confused it with the inducement to innovation arising out of
the systemic nature of the technology itself.
6. This is especially relevant, for instance, in the case of large R&D projects with long gestation
periods, such as, in pharmaceuticals. In such cases it may so happen that by the time
technological breakthrough is achieved the context itself might have changed thereby
rendering the breakthrough obsolete despite its magnificence.
7. These include the mechanization of reaping, the development of braking systems in
automobiles, power loom in textile manufacturing, machining of bicycle wheel hubs,
Bessemer process and Bessemer converter for manufacturing steel, and so on.
8. According to Rosenberg (1976) complex technologies create internal compulsions and
pressures, which in turn, initiate exploratory activity in particular directions.
JSMA 9. Dosi (1997, p. 1535) argues that, “inducement may take the form of an influence of market
conditions upon the relative allocation of search efforts to different technologies or products.”
4,4
10. Rosenberg (1976) argues that the mechanisms, which initiate and direct exploratory
activities, cannot be defined in vague and general terms such as “economic incentives to
innovation” used in neo-classical economics. Early neo-classical economists attributed the
specific pattern and direction of search to the differences in factor prices; that is, increase in
400 factor prices induced technological innovation (e.g. Hicks, 1932). Later neo-classical
economists increased the scope of the incentive system to include total costs. They argued
that in a competitive context, firms were interested not in saving particular factor costs but
total costs (e.g. Samuelson, 1949).
11. For instance, choice between a mobile telephone based on GSM or CDMA technology, or
between a mobile phone based on “2G” technology and a “3G” technology, or between a
mobile phone and satellite telephone. In such cases, consumers do not actually choose a GSM
mobile over a CDMA mobile. They choose a mobile communications service which serves
their needs better.
12. The demand-side literature treats market demand as manifestation of choices exercised by
consumers in favor of particular products or more specifically functional and price attributes.
Products or services that “most” match the consumer preferences end up taking the market.
Dynamism is infused into such conception by arguing that since consumer preferences evolve
products based on different technological trajectories may replace existing products because
of their ability to better match the evolved consumer preferences. Products – based on specific
technological trajectories – that evolve with consumer preferences, replace those products –
based on certain technological trajectories – which do not.
13. The concept of bottleneck and redundancy is borrowed from the literature on investment and
pricing models in telecommunications and other industries based on systemic technologies
(refer Pannone, 2001, for more details).
14. For instance, satellite telephony is more sophisticated and provides better features than any
of the competing systems of cellular telephony. However, the operating cost of the same does
not render it deployable to provide wireless communications to ordinary consumers, that is,
it does not have a large enough consumer market even though there exists a demand
trajectory that could match it. In this case the “compelling and obvious signal” is to find
applications the price of which can support the investment required to maintain the system.

References
Abernathy, W. and Utterback, J. (1978), “Patterns of industrial innovation”, Technology Review,
Vol. 80 No. 7, pp. 40-7.
Abramovitz, M. (1956), “Resource and output trends in the United States since 1870”,
The American Economic Review, Vol. 46 No. 2, pp. 5-23.
Adner, R. (2002), “When are technologies disruptive: a demand-based view of the emergence of
competition”, Strategic Management Journal, Vol. 23, pp. 667-88.
Adner, R. and Levinthal, D. (2001), “Demand heterogeneity and technology evolution:
implications for product and process innovation”, Management Science, Vol. 47 No. 5,
pp. 611-28.
Adner, R. and Zemsky, P. (2005), “Disruptive technology and the emergence of competition”,
Rand Journal of Economics, Vol. 36 No. 2, pp. 229-54.
Agarwal, R. and Gort, M. (1996), “The evolution of markets and entry, exit and survival of firms”,
The Review of Economics and Statistics, Vol. 78 No. 3, pp. 489-98.
Arthur, W.B. (1989), “Competing technologies, increasing returns, and lock-in by historical Systemic
events”, The Economic Journal, Vol. 99 No. 394, pp. 116-31.
technologies
Bayus, B.L. and Agarwal, R. (2007), “The role of pre-entry experience, entry timing, and product
technology strategies in explaining firm survival”, Management Science, Vol. 53 No. 12,
pp. 1887-902.
Bresnahan, T. and Trajtenberg, M. (1995), “General purpose technologies: ‘engines of growth?’”,
Journal of Econometrics, Vol. 65, January, pp. 83-108. 401
Clark, K.B. (1985), “The interaction of design hierarchies and market concepts in technological
evolution”, Research Policy, Vol. 14, pp. 235-51.
Cohen, W.M. and Levin, R.C. (1989), “Empirical studies of innovation and market structure”,
in Schmalensee, R.R. and Willig, R.D. (Eds), Handbook of Industrial Organization, Vol. 2,
North-Holland, Amsterdam.
Dosi, G. (1982), “Technological paradigms and technological trajectories”, Research Policy, Vol. 11
No. 3, pp. 147-62.
Dosi, G. (1988), “Sources, procedures and microeconomic effects of innovation”, Journal of
Economic Literature, Vol. 36, pp. 1126-71.
Dosi, G. (1997), “Opportunities, incentives and the collective patterns of technological change”,
Economic Journal, Vol. 107, pp. 1530-47.
Ericson, R. and Pakes, A. (1995), “Markov-perfect industry dynamics: framework for empirical
work”, The Review of Economic Studies, Vol. 62 No. 1, pp. 53-82.
Garud, R. and Kumaraswamy, A. (1995), “Technological and organizational designs to achieve
economies of substitution”, Strategic Management Journal, Vol. 16, pp. 93-110.
Geroski, P. (2003), The Evolution of New Markets, Oxford University Press, New York, NY.
Gort, M. and Klepper, S. (1982), “Time paths in the diffusion of product innovations”, Economic
Journal, Vol. 92, pp. 630-53.
Gupta, S. and Lehmann, D.R. (2003), “Customers as assets”, Journal of Interactive Marketing,
Vol. 17 No. 1, pp. 9-24.
Hicks, J.R. (19321963), The Theory of Wages, 2nd ed., Macmillan, London.
Kamien, M.I. and Schwartz, N.L. (1970), “Market structure, elasticity of demand and incentive to
invent”, Journal of Law and Economics, Vol. 13 No. 1, pp. 241-52.
Katz, M.L. and Shapiro, C. (1985), “Network externalities, competition, and compatibility”,
American Economic Review, Vol. 75, pp. 424-40.
Klepper, S. (1996), “Entry, exit, growth and innovation over the product life cycle”, The American
Economic Review, Vol. 86, pp. 526-83.
Klepper, S. (1997), “Industry life cycles”, Industrial and Corporate Change, Vol. 6 No. 1, pp. 145-81.
Klepper, S. (2002a), “Firm survival and the evolution of oligopoly”, RAND Journal of Economics,
Vol. 33, pp. 37-61.
Klepper, S. (2002b), “The capabilities of new firms and the evolution of US automobile industry”,
Industrial and Corporate Change, Vol. 11 No. 4, pp. 645-66.
Lerner, J. and Tirole, J. (2002), “Some simple economics of open source”, Journal of Industrial
Economics, Vol. 50 No. 2, pp. 197-234.
Levin, R.C., Klevorick, A.K., Nelson, R.R. and Winter, S.G. (1987), “Appropriating the returns
from industrial research and development”, Brookings Papers on Economic Activity, Vol. 18
No. 3, pp. 783-832.
JSMA Liebowitz, S.J. and Margolis, S.E. (1995), “Path dependence, lock-in and history”, Journal of Law,
Economics, and Organization, Vol. 11, pp. 205-26.
4,4
Malerba, F. (1985), “Demand structure and technological change: the case of the European
semiconductor industry”, Research Policy, Vol. 14 No. 5, pp. 283-97.
Malerba, F., Nelson, R., Orsenigo, L. and Winter, S. (2007), “Demand, innovation, and the
dynamics of market structure: the role of experimental users and diverse preferences”,
402 Journal of Evolutionary Economics, Vol. 17, pp. 371-99.
Manral, L. (2010a), “Demand competition and investment heterogeneity in industries based on
systemic technologies: evidence from the US long-distance telecommunications services
industry, 1984-1996”, Journal of Evolutionary Economics, Vol. 20 No. 5, pp. 765-802.
Manral, L. (2010b), “Towards a theory of endogenous market structure in strategy: exploring the
endogeneity of demand-side determinants of firm investment strategy and market
structure”, Journal of Strategy and Management, Vol. 3 No. 4, pp. 352-73.
Milgrom, P., Qian, Y. and Roberts, J. (1991), “Complementarities, momentum, and the evolution of
modern manufacturing”, American Economic Review, Vol. 81, pp. 85-9.
Moser, P. and Nicholas, T. (2004), “Was electricity a general purpose technology? Evidence from
historical patent citations”, American Economic Review, Vol. 94 No. 2, pp. 388-94.
Nelson, R.R. and Winter, S.G. (1982), An Evolutionary Theory of Economic Change, Belknap
Press, Cambridge, MA.
Noda, T. and Collis, D.J. (2001), “The evolution of intraindustry firm heterogeneity: insights from
a process study”, Academy of Management Journal, Vol. 44 No. 4, pp. 897-925.
Pakes, A. and McGuire, P. (1994), “Computing mark-perfect Nash equilibria: numerical
implications of a dynamic differentiated product model”, RAND Journal of Economics,
Vol. 25 No. 4, pp. 555-89.
Pannone, A. (2001), “Accounting and pricing for the telecommunications industry: an operational
approach”, Industrial and Corporate Change, Vol. 10 No. 2, pp. 453-80.
Romer, P.M. (1986), “Increasing returns and long run growth”, Journal of Political Economy,
Vol. 94, pp. 1002-37.
Rosenberg, N. (1974), “Science, invention, and economic growth”, Economic Journal, Vol. 100,
pp. 90-100.
Rosenberg, N. (1976a), “Directions of technological change: inducement mechanisms and
focusing devices”, Economic Development and Cultural Change, pp. 1-24.
Rosenberg, N. (1976b), Perspectives on Technology, Cambridge University Press, Cambridge, MA.
Rosenberg, N. and Mowery, D. (1979), “The influence of market demand upon innovation:
a critical review of some recent empirical studies”, Research Policy, Vol. 8, pp. 102-53.
Rosenberg, N. and Trajtenberg, M. (2001), “A general purpose technology at work: the Corliss
steam engine in the late 19th century US”, working paper 8485, NBER, Cambridge, MA.
Ruttan, V.W. (1997), “Induced innovation, evolutionary theory and path dependence: sources of
technical change”, The Economic Journal, Vol. 107, pp. 1520-9.
Ruttan, V.W. (2001), Technology, Growth, and Development: An Induced Innovation Perspective,
Oxford University Press, New York, NY.
Samuelson, P.A. (1949), “International factor-price equalisation once again”, Economic Journal,
Vol. 59, June, pp. 181-97.
Scherer, F.M. (1982), “Demand-pull and technological invention: Schmookler revisited”,
The Journal of Industrial Economics, Vol. 30 No. 3, pp. 225-37.
Schmookler, J. (1962), “Economic sources of inventive activity”, Journal of Economic History, Systemic
Vol. 22, pp. 1-20.
Schmookler, J. (1966), Invention and Economic Growth, Harvard University Press, Cambridge,
technologies
MA.
Solow, R.M. (1957), “Technical change and the aggregate production function”, The Review of
Economics and Statistics, Vol. 39 No. 3, pp. 312-20.
Spence, M. (1975), “Monopoly, quality, and regulation”, The Bell Journal of Economics, Vol. 6 403
No. 2, pp. 417-29.
Sutton, J. (1998), Technology and Market Structure, MIT Press, Cambridge, MA.
Teubal, M. (1979), “On user needs and need determination: aspects of the theory of technological
innovation”, in Baker, M.J. (Ed.), Industrial Innovation: Technology, Policy, Diffusion,
Macmillan, London, pp. 266-89.
Tushman, M.L. and Anderson, P. (1986), “Technological discontinuities and organizational
environments”, Administrative Science Quarterly, Vol. 31, pp. 439-65.
von Hippel, E. (1988), The Sources of Innovation, Oxford University Press, New York, NY.
Walsh, V. (1984), “Invention and innovation in the chemical industry: demand-pull or
discovery-push”, Research Policy, Vol. 13, pp. 211-34.

Further reading
Abernathy, W.J. and Clark, K.B. (1985), “Innovation: mapping the winds of creative destruction”,
Research Policy, Vol. 14 No. 1, pp. 3-22.
Anderson, P. and Tushman, M. (2001), “Organizational environments and industry exit: the
effects of uncertainty, munificence and complexity”, Industrial and Corporate Change,
Vol. 10, pp. 675-711.
Arora, A., Fosfuri, A. and Gambardella, A. (2001), Markets for Technology: Economics of
Innovation and Corporate Strategy, MIT Press, Cambridge, MA.
Athey, S. and Schmutzler, A. (2001), “Investment and market dominance”, RAND Journal of
Economics, Vol. 32 No. 1, pp. 1-26.
Bresnahan, T.F. (1989), “Empirical studies of industries with market power”, in Schmalensee, R.
and Willig, R.D. (Eds), Handbook of Industrial Organization, Vol. 2, North-Holland,
Amsterdam.
Milgrom, P. and Roberts, J. (1988), “Economic theories of the firm: past, present, and future”,
Canadian Journal of Economics, Vol. 21 No. 3, pp. 444-58.
Rosenberg, N. (1996), “Uncertainty and technological change”, in Landau, R., Taylor, T. and
Wright, G. (Eds), The Mosaic of Economic Growth, Stanford University Press, Stanford,
CA.
Sutton, J. (1991), Sunk Costs and Market Structure: Price Competition, Advertising, and the
Evolution of Concentration, MIT Press, Cambridge, MA.

Corresponding author
Lalit Manral can be contacted at: lmanral@uco.edu

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints