NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Competitive Diffusion

Boyan Jovanovic, Glenn MacDonald

NBER Working Paper No. 4463 (Also Reprint No. r1867)
Issued in September 1993
NBER Program(s):   PR

The usual explanation for why the producers of a given product use different technologies involves "vintage-capital": A firm understands the frontier technology, but can still prefer an older, less efficient technology in which it has made specific physical and human capital investments. This paper develops an alternative. "information-barrier" hypothesis: Firms differ in the technologies they use because it is costly for them to overcome the informational barriers that separate them. The paper endogenizes both innovative and imitative effort. The industry life-cycle implications -- declining price and increasing output -- broadly agree with the Gort-Klepper data. Empirically, the paper focuses on the slow spread of Diesel locomotives, which can not be explained by the vintage-capital hypothesis alone. For instance, contrary to that hypothesis, railroads were buying new steam locomotives long after the Diesel first came into use -- exactly as the information-barrier hypothesis would imply.

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Document Object Identifier (DOI): 10.3386/w4463

Published: Journal of Political Economy, 102, no. 1, (February 1994), p. 24-52 citation courtesy of

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