When firms may benefit from sticking with an old technology

Xu Li

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Research Summary How should firms respond to technological discontinuities in order to achieve greater performance? In contrast to most studies that advocate a timely transition from the old to the new technology, this paper posits that in markets where a discontinuous technology exposes customers' latent preference heterogeneity for certain old technology attributes, firms may ultimately experience a performance surge by adhering to the old technology during technological change. Explicitly, I theorize a U-shaped relationship within such a market between competitors' increasing adoption of the new technology and the performance of firms that stick with the old technology. This prediction is thoroughly examined using comprehensive data from the traditional Chinese medicine industry in China during the 1990s and receives robust empirical support. Managerial Summary In some markets, the rise of a discontinuous technology, besides posing a substitute threat to the old technology, further exposes niche segments where customers continue to favor the old technology. This paper predicts that within such a market, as competitors increasingly adopt the new technology for varied motives, firms sticking with the old technology may see their performance declining before rebounding and potentially reaching new heights. Analyses using archival data from the traditional Chinese medicine industry in China during the 1990s provide robust support for this prediction. The arguments and findings of this paper offer an “existence proof” that when confronted with a technological discontinuity, adhering to the old technology may also represent an effective strategy that ultimately improves firm performance.

Keywords: demand heterogeneity; firm performance; old technology; technological discontinuity (search for similar items in EconPapers)
JEL-codes: J50 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2024-03-01
New Economics Papers: this item is included in nep-cfn, nep-cna, nep-com, nep-cse and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Strategic Management Journal, 1, March, 2024, 45(3), pp. 399 - 428. ISSN: 0143-2095

Downloads: (external link)
http://eprints.lse.ac.uk/120131/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:120131

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().