Economics of Product Development by Users: The Impact of "Sticky" Local Information

Eric von Hippel
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Eric von Hippel: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Management Science, 1998, vol. 44, issue 5, 629-644

Abstract: Those who solve more of a given type of problem tend to get better at it---which suggests that problems of any given type should be brought to specialists for a solution. However, in this paper we argue that agency-related costs and information transfer costs ("sticky" local information) will tend drive the locus of problem-solving in the opposite direction---away from problem-solving by specialist suppliers, and towards those who directly benefit from a solution and who have difficult-to-transfer local information about a particular application being solved, such as the direct users of a product or service. We examine the actual location of design activities in two fields in which custom products are produced by "mass-customization" methods: application-specific integrated circuits (ASICs) and computer telephony integration (CTI) systems. In both, we find that users rather than suppliers are the actual designers of the application-specific portion of the product types examined. We offer anecdotal evidence that the pattern of user-based customization we have documented in these two fields is in fact quite general, and we discuss implications for research and practice.

Keywords: User Innovation; Sticky Information; Local Information; Heterogeneous Markets; Mass Customization; Specialization in Problem Solving; Task Partitioning (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (132)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:44:y:1998:i:5:p:629-644

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