The User Innovation Paradigm: Impacts on Markets and Welfare
Innovation has traditionally been seen as the province of producers. However, theoretical and empirical research now shows that individual users—consumers—are also a major and increasingly important source of new product and service designs. In this paper, we build a microeconomic model of a market...
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| Format: | Article |
| Language: | en_US |
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Institute for Operations Research and the Management Sciences (INFORMS)
2016
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| Online Access: | http://hdl.handle.net/1721.1/103555 https://orcid.org/0000-0002-7235-1032 |
| _version_ | 1826199017424420864 |
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| author | Gambardella, Alfonso Raasch, Christina von Hippel, Eric A. |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Gambardella, Alfonso Raasch, Christina von Hippel, Eric A. |
| author_sort | Gambardella, Alfonso |
| collection | MIT |
| description | Innovation has traditionally been seen as the province of producers. However, theoretical and empirical research now shows that individual users—consumers—are also a major and increasingly important source of new product and service designs. In this paper, we build a microeconomic model of a market that incorporates demand-side innovation and competition. We explain the conditions under which firms find it beneficial to invest in supporting and harvesting users’ innovations, and we show that social welfare rises when firms utilize this source of innovation. Our modeling also indicates reasons for policy interventions with respect to a mixed user and producer innovation economy. From the social welfare perspective, as the share of innovating users in a market increases, profit-maximizing firms tend to switch “too late” from a focus on internal research and development to a strategy of also supporting and harvesting user innovations. Underlying this inefficiency are externalities that the producer cannot capture. Overall, our results explain when and how the proliferation of innovating users leads to a superior division of innovative labor involving complementary investments by users and producers, both benefitting producers and increasing social welfare. |
| first_indexed | 2024-09-23T11:13:26Z |
| format | Article |
| id | mit-1721.1/103555 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T11:13:26Z |
| publishDate | 2016 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/1035552022-10-01T02:11:03Z The User Innovation Paradigm: Impacts on Markets and Welfare Gambardella, Alfonso Raasch, Christina von Hippel, Eric A. Sloan School of Management von Hippel, Eric A. von Hippel, Eric A. Innovation has traditionally been seen as the province of producers. However, theoretical and empirical research now shows that individual users—consumers—are also a major and increasingly important source of new product and service designs. In this paper, we build a microeconomic model of a market that incorporates demand-side innovation and competition. We explain the conditions under which firms find it beneficial to invest in supporting and harvesting users’ innovations, and we show that social welfare rises when firms utilize this source of innovation. Our modeling also indicates reasons for policy interventions with respect to a mixed user and producer innovation economy. From the social welfare perspective, as the share of innovating users in a market increases, profit-maximizing firms tend to switch “too late” from a focus on internal research and development to a strategy of also supporting and harvesting user innovations. Underlying this inefficiency are externalities that the producer cannot capture. Overall, our results explain when and how the proliferation of innovating users leads to a superior division of innovative labor involving complementary investments by users and producers, both benefitting producers and increasing social welfare. Deutsche Forschungsgemeinschaft (RA 1798/3-1, and subsequently SFB 768) Italy. Ministry of Education, Universities and Research (Project CUP B41J12000160008) 2016-07-08T18:23:43Z 2016-07-08T18:23:43Z 2016-04 2015-07 Article http://purl.org/eprint/type/JournalArticle 0025-1909 1526-5501 http://hdl.handle.net/1721.1/103555 Gambardella, Alfonso, Christina Raasch, and Eric von Hippel. “The User Innovation Paradigm: Impacts on Markets and Welfare.” Management Science (April 4, 2016). https://orcid.org/0000-0002-7235-1032 en_US http://dx.doi.org/10.1287/mnsc.2015.2393 Management Science Creative Commons Attribution-NoDerivatives 4.0 International License http://creativecommons.org/licenses/by-nd/4.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) Prof. von Hippel |
| spellingShingle | Gambardella, Alfonso Raasch, Christina von Hippel, Eric A. The User Innovation Paradigm: Impacts on Markets and Welfare |
| title | The User Innovation Paradigm: Impacts on Markets and Welfare |
| title_full | The User Innovation Paradigm: Impacts on Markets and Welfare |
| title_fullStr | The User Innovation Paradigm: Impacts on Markets and Welfare |
| title_full_unstemmed | The User Innovation Paradigm: Impacts on Markets and Welfare |
| title_short | The User Innovation Paradigm: Impacts on Markets and Welfare |
| title_sort | user innovation paradigm impacts on markets and welfare |
| url | http://hdl.handle.net/1721.1/103555 https://orcid.org/0000-0002-7235-1032 |
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