Working Paper

Technological innovation and market turbulence: the dot-com experience

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 enter the market implementing the innovation for profits. 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. Empirical evidence from retail and banking industries supports the theoretical findings. ; Earlier title: Technology innovation and market turbulence: a dot-com example

Status: Published in Review of Economic Dynamics, Jan. 2007, v.10, no. 1 (pp 78-105)

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Payments System Research Working Paper

Publication Date: 2005

Number: PSR WP 05-02