Brian- Week 10_ Markets for Technology

Brian- Week 10_ Markets for Technology - ECO 5073S...

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ECO 5073S Globalisation, Industrialisation and Development Markets for Technology Presented by Brian Makundi Wednesday 30 th September 2015
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This Presentation will address the following; How does the size of the market impact on the rise of General Purpose Technologies (GPTs) and specialist technology suppliers as opposed to development of in-house firm specific technologies? The supporting institutions required to foster the effectiveness of markets for technology. Policy implications
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Some Definitions General Purpose Technologies (GPT’s) – technologies that encompass several applications; standardized in nature Fixed costs of developing a GPT can be spread over many potential applications Efficiency of those who supply GPT’s increases as the number of applications a GPT can address increases Specialized Technology Suppliers – innovative labor engaged in the development of technology including GPT’s “Local” Technologies – technologies that are developed in-house by the users who require them; specific in nature Downstream Users – uses of technologies be it general purpose technologies or local technologies
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Impact of size of market “The division of labor is limited by the extent of the market” – Adam Smith With regard to the rise of GPT’s the size of the market is important BUT; Breadth vs Depth of Market The number of potential uses (applications) of a GPT and hence its propensity to attract a varied number of users is what counts most The higher the number of distinct and heterogeneous users the more likely the development of technologies that are more “generic” in nature In turn encourages the endogenous emergence of a division of innovative labor creation of GPT’s Conversely an increase in the size of application of a particular technology i.e. greater depth is likely to induce users to develop their own technologies “Local Technologies”
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Cost-Minimizing Industry Structure Division of Labor vs Vertical Integration To further gain an appreciation of why the breadth rather than the depth of the market is what is critical, it is worthwhile considering the “cost-minimizing industry structure” Bresnahan and Trajtenberg (1995) provide a micro-foundation of how GPT’s contribute to industry and economic development Propose a model of industry structure that is based on upstream GPT developers producing technology that is distributable to several downstream sectors Arora et al (2001) , building on the seminal article by Bresnahan and Trajtenberg help conceptualize further the framework necessary for determining a cost-minimizing industry structure by asking; Under what conditions is it cost efficient for different users to rely on a common source of technology as opposed to developing it in-house?”
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Cost-Minimizing Industry Structure Division of Labor vs Vertical Integration Industry Structure One
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Cost-Minimizing Industry Structure
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