Technological Innovation and Market Turbulence: The Dot-com Experience

Zhu Wang

Review of Economic Dynamics, 2007, vol. 10, issue 1, 78-105

Abstract: This paper explains market turbulence, such as the recent dot-com boom/bust cycle, as equilibrium industry dynamics driven by the synergy between new and existing technologies. When a major technological innovation arrives, a wave of new firms implement the innovation and enter the market. However, if the innovation complements existing technology, some new entrants later will be forced out as more and more incumbent firms succeed in adopting the innovation. It is argued that the diffusion of internet technology among traditional brick-and-mortar firms was indeed the driving force behind the rise and fall of dot-coms as well as the sustained growth of e-commerce. Systematic empirical evidence from retail and banking industries supports the theoretical findings. (Copyright: Elsevier)

Keywords: Technology diffusion; Industry dynamics; Shakeout (search for similar items in EconPapers)
JEL-codes: E30 L10 O30 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (13)

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DOI: 10.1016/j.red.2006.10.001

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