Market Motives, Distinctive Capabilities, and Domestic Inertia: A Hybrid Model of Innovation Generation

The authors develop and test a model of innovation in which the generative process of innovation is fostered by a balance of three forces: market motives, distinctive capabilities, and domestic inertia. The authors distinguish between potential and realized competition and, focusing on interinnovation duration as the dependent variable, develop hypotheses to capture the effects of competition, feedback from the marketplace, and product characteristics on innovation dynamics. Weekly diffusion and innovation data for 11 computer software products available on the Internet, involving more than 100 new versions in the period 1991 to 1994, are used to test the hypotheses. Model comparison tests provide strong support for the hybrid model over models based on restricted conceptualizations. Domestic inertia considerations explain 45% of the variance in interinnovation duration, and market motives and distinctive capabilities explain 33% and 22%, respectively. The authors support the expectation of a U-shaped effect of potential competition and find that realized competition increases interinnovation duration. Products that are more customer-driven witness faster innovation, and the diffusion rate of a current innovation plays a significant role in future innovative activities: It moderates the effect of potential competition and interacts with product bundling to delay innovation. Furthermore, the authors find that product bundling per se does not influence innovation activities and that, when a product is enjoying a high rate of diffusion, competition does not hasten the arrival of innovations.

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