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The Value of Product Innovation in a Mature Industry: A Natural Experiment in the DRAM Industry

Journal

Academy of Management Proceedings

Subject

Strategy and Entrepreneurship

Publishing details

Academy of Management Proceedings 2015 Vol 2015:1

Authors / Editors

Chang S

Biographies

Publication Year

2015

Abstract

How much do R&D units for product innovation affect performance in a mature industry? Industry evolution literature predicts that opportunities for product innovation deplete over time and process innovation (manufacturing capability) becomes more important as an industry reaches a maturity stage. However, the prediction of evolutionary economics and knowledge management literature is different; a seeming maturity stage will be punctuated by the introduction of new products (by product innovation of R&D units). The DRAM industry 2006-2012, which is known as a mature industry, offers an unusual setting to test these competing hypotheses. During this period, Taiwanese companies experimented a new business model, a DRAM foundry without an R&D unit. We exploit a natural experiment to examine how an exogenous reduction of R&D units during the 2007-2009 downturn of silicon cycle influences firm-level performance. Using the DRAM makers' profitability and technology data from iSuppli and SEMI databases, I find that reduction of the R&D units led to sharply lower profitability (-84%). The results suggest that the importance of product innovation may not decrease in a fast-changing technological environment.

Keywords

Evolutionary economics; Industry evolution; Product innovation

Available on ECCH

No


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