AOM Session: Interfaces of Creation of Markets & Industries Atlanta, Georgia

1. Markets for Technology &
the Role of Ecosystems
D A V I D J . T E E C E
U N I V E R S I T Y O F C A L I F O R N I A , B E R K E L E Y : H A A S S C H O O L O F B U S I N E S S
A O M S E S S I O N : " I N T E R F A C E S O F C R E A T I O N O F M A R K E T S & I N D U S T R I E S
A U G U S T 6 , 2 0 1 7
A T L A N T A , G A
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2. Teece extension’s of Adam Smith
(with respect to know-how markets)
1. “The division of labor is limited by the extent of the market” by the
existence of property rights, and in the case of know-how/
unstructured technical dialogue (Adam Smith)
2. The ability for firms to specialize in R&D and invention depends on:
• The size of the market
• The ecosystem of robust (and enforceable) intellectual property
regimes
• Opportunities for technical dialogues between supplier & customer
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3. Rosenbergian Focusing Devices*
•Bottlenecks in technological development often require and spur
innovation.
• T. Hughes referred to bottlenecks as “reverse salient”.
•Radical innovation is often needed to break a bottleneck. (e.g. in the
early years of ballistic missiles, D.A. Mackenzie has identified the
gyroscope as a bottleneck (“Inventing Accuracy: A Historical Sociology of
Nuclear Missile Guidance”, MIT Press, 1990)
•The operation of markets for know-how/technology depend not merely
on transaction cost issues. They also depend on information flows and
inducement effects & property rights
Nathan Rosenberg, (1969), The Direction of Technological Change:
Inducement Mechanisms and Focusing Devices, Economic Development
and Cultural Change, 18, (1), 1-24
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4. Busting through bottlenecks
•Rosenberg & Hughes have described how such bottlenecks, over time,
got solved.
•However, it takes entrepreneurial effort to do so… there are, as
Rosenberg points out, natural “focusing factors”.
•Pubic policy needs to, when possible, assist the process too.
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5. Unstructured technical dialogue helps
make markets work
•“Changing the specification of one component may require a cascade of
unknown changes to other components. Managing these
interdependencies requires the exchange of a substantial amounts of
complex, non-codified, and often “sticky” design knowledge”. (P. Klein
refers to K. Montverde's paper as the foundations of the capabilities
view of the firm”).
•Information is acquired more easily within than across firm boundaries
(Williamson, 1975; Azoulay, 2000)
•Unstructured technological dialogue may also help solve bottleneck
problems
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6. Market failures & the role of firms &
ecosystems
•Well recognized market failures exist because of positive spillovers from
innovation. This provides the case for government subsidy/support for
early stage research.
•But there are market failures of a different kind… what Malmgren
referred to as a failure for expectations to converge… that also (absent
vertical integration) leads to market failure.
• Some of these are informational (that is what Malmgren and G.
Richardson stressed)
• But there are also capability issues and bottlenecks issues to contend
with too
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7. Ecosystems help solve bottlenecks and
support the advance of technologies
•Electricity as an ecosystem: Paul David has documented the role
Thomas Edison played in ensuring that socio technological problems
were solved
•Ecosystems help markets work (e.g. smart phones wouldn’t work
without a robust ecosystem.
"Our competitors aren't taking our market share with devices; they are
taking our market share with an entire ecosystem.“ - Steve Elop, CEO of
Nokia
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8. Creation of Industries
•Enabling and general purpose technologies are the handmaiden of
industry creation
•The diffusion (through licensing or downstream integration) enabling
technologies helps create new industries
•5G and IOT is a case in point.
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