Innovation, markets and industrial change
Innovation, markets and industrial change

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Innovation, markets and industrial change

5 Conclusion

The idea of the double whammy brings together the two driving forces behind changes in industrial structure, with which this course opened and now closes. The use of a new technology causes a decline in the costs of production, which in turn encourages a rapid take-up by consumers of products embodying the new technology. This course has explored the factors affecting consumer demand. While the price of the product was found to be of crucial importance, socio-economic influences such as culture and identity were seen to have an important role to play, especially in the introductory phase of the industry life cycle. It is also possible to explain the foundations of consumer demand with an account of utility theory and its role in understanding individual choice and equilibrium.

On the supply side the firm's cost curves reflect the technology it uses to produce goods and services. An analysis of cost curves showed the constraints imposed by technology on the firm's development and how technological change creates new opportunities. Technology is ultimately a matter of knowledge and technological change can best be modelled in dynamic terms, as firms search creatively for new products and processes and learn how to make and employ them.

In the network industries, prominent in the new economy, the demand- and supply-side factors interact in particularly striking ways. Network externalities and industry standards combine to push the industry from a turbulent crowd of heterogeneous firms to a small number of similar firms. It is also possible to put together the analysis of demand, costs and technology into a study of firms’ decision-making and of the behaviour of firms in industries where one firm is big enough to wield monopoly power.

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