Technology Innovation and Market Turbulence: A Dotcom Example

Zhu Wang

No 508, 2006 Meeting Papers from Society for Economic Dynamics

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

Keywords: Technology Diffusion; Industry Dynamics; Shakeout (search for similar items in EconPapers)
JEL-codes: E30 L10 O30 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-com, nep-ent, nep-ino and nep-tid
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