Funda Class 3 Flashcards
What are the two main roles of demand in the innovation process?
Demand as an incentive to innovation: The size of the market affects innovation. Differences in the rate and direction of inventive activity depend on the relative size of demand. An increase in market size can produce a greater variety of potential solutions.
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Demand as a source of innovation: Users can be innovators, developing products for their own use. Lead users have needs that will become general in the marketplace in the future.
According to Jacob Schmookler, how does the size of the market impact innovation?
The size of the market affects innovation. Differences in the rate and direction of inventive activity depend on the relative size of demand. A larger market can support a greater variety of solutions because R&D investments can be spread among them. However, demand has to be heterogeneous
What is “induced innovation,” and what drives it?
Induced innovation is when a change in the relative price of production spurs invention to economize on a factor that has become relatively expensive. Relative factor prices determine which processes are most convenient for a firm
Explain the difference between “technology push” and “demand pull” in the context of innovation.
Technology Push: The innovation process starts with a discovery or invention. Needs are infinite, and technological paradigms and trajectories guide innovative activity.
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Demand Pull: Innovations are developed in response to a market or demand need. Technology follows demand. Demand is examined as an incentive for innovation
What are some criticisms of the “market pull” approach to innovation?
It does not distinguish among the various potentially limitless set of human needs.
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It does not explain why and when certain technological developments, instead of others, occur with a certain timing.
Give an example of an innovation that was driven by technology push.
X-rays: discovered as a form of radiation during experiments with electricity and then had medical applications to search for bullets in wounded soldiers within a year
Give an example of a user as an innovator.
Josephine Cochrane: Tired of having her china chipped, she invented the first machine that could clean dishes. She developed it and founded the Cochrane Crescent Washing Machine company
What are “lead users,” and what two effects characterize them?
Lead users are consumers who have major needs that will become general in the marketplace in the future. They are characterized by experience in use and as customers.
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Knowledge Effect: They experience needs that the rest of users will experience much later.
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Incentive Effect: They obtain greater benefits from satisfying their needs
Why do individual consumers or professionals innovate?
○They have direct and deep knowledge of the uses.
○They may be the only actors that benefit directly from innovation.
○They innovate because they cannot find products or services with the characteristics they want on the market.
○There are heterogeneous preferences for characteristics, and manufacturers may produce for the majority
Why might industrial users (firms) choose to develop and produce a component internally instead of ordering it from a supplier?
Transaction Cost Economics: Risk of opportunism due to asset specificity in R&D and investments. There are costs to ensure that a manufacturer follows the user’s interests.
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Differences in Desirable Solutions: Users are concerned with the best technical solution, while manufacturers seek a compromise that fits their existing routines and capabilities.
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Differences in Quality Requirements: Users might not accept compromises to quality that manufacturers may make to keep costs down.
* “Sticky” Information: The cost of transferring information between firms, especially when knowledge contexts differ, can make it easier to innovate internally. Knowledge about needs is at the user site; problem-solving knowledge is at the manufacturer
What are the reasons why users might reveal their innovations?
To increase the reputation of the innovator.
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To increase the diffusion of the innovation.
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For fun and learning from participation in innovation communities.
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Norms of sharing
What is “open innovation,” and how does it work?
Open innovation is a framework where firms use external knowledge to accelerate internal innovations. Firms combine external ideas with internal ones, with the challenge of converting external knowledge into new products and services
How are trademarks (TM) useful as an indicator of innovation?
Trademarks protect brands and do not require technological novelty; they require distinctiveness. The number of trademarks is higher than the number of patents. Trademarks can enhance a firm’s reputation and allow them to appropriate more profits. Trademarks are often complementary to patents in high-tech sectors. They can also be a reliable indicator of product differentiation and product changes in services
What are the two main types of user entrepreneurship?
User Entrepreneurship: New firms founded by individuals (consumers or professionals).
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User-Industry Spinouts: New firms founded by ex-employees of user firms
What are the two ways a user firm can enter the supplier industry?
Vertical Integration: A user firm innovates and produces a component internally (in-house).
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User-Industry Spinouts: An independent start-up company originates from the user firm and enters the supplier industry
What are the advantages of user-industry spinouts?
They have knowledge about uses and applications that is a key asset and impacts positively on their survival.
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They are more likely to enter into market-specific products.
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They perform better than spin-offs from other microelectronics firms and inexperienced startups because they have direct application knowledge.
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They have a higher likelihood of survival in the focal industry
What are some factors that affect the rate of diffusion of a new technology?
Benefit received from the technology.
○Network effects.
○Costs of adopting the new technology.
○Information and uncertainty.
○Demand size.
○Market structure.
○Industry environment.
○Cultural and social factors
Entry from Industrial Demand
Two Ways of Entry:
Vertical Integration:
When a user firm producing a final product innovates and manufactures a component in-house to maintain quality, control innovation, and reduce supplier dependency.
Example: Tesla producing its own batteries.
User-Industry Spinouts:
When employees or teams from a user firm leave to start an independent company, supplying components to the industry.
Why Spinouts Emerge:
Demand Heterogeneity: Diverse market needs create niches.
Knowledge of Applications: Insights from the user firm give spinouts a competitive edge.
Low Barriers to Entry: Spinouts thrive with low start-up costs and capital equipment needs.
