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Disruptive technologies and the emergence of competition

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The authors formalize the phenomenon of disruptive technologies that initially serve isolated market niches and, as they mature, expand to displace established technologies from mainstream segments. Using a novel model of horizontal and vertical differentiation with discrete customer segmentation, they show how the emergence of technology competition depends on the trajectory of technological advance, the extent of decreasing marginal utility from product improvements, the ability of firms to price discriminate, the size of market segments, the marginal production costs of the technologies, and the number of firms using each technology. Their theory suggests a richer and more dynamic approach to market definition than the static analysis of substitutability usually employed in antitrust deliberations.

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