Intermarket Differences in the Early Diffusion of an Innovation

The rate of technological change, and the rate at which the new technology diffuses through an industry, is of increasing importance in evaluating the performance of firms in an industry. Recent research efforts to understand the diffusion process include the work of Benvignati 1, Mansfield 8, Mansfield, et. al. 9, Reinganum 11, and Romeo 12; 13. Typically, the empirical analyses trace the diffusion of the same innovation in different industries or several innovations as they diffuse through a particular industry. In contrast to these previous efforts, this paper analyzes the diffusion of a single innovation in the same industry but across different geographic markets. Since the focus is on a particular innovation, one is able to control for variables, such as the capital cost of the innovation or the potential profitability of an innovation, that otherwise would vary significantly across innovations. Since the focus is on a particular industry, it is not necessary to control for industry specific characteristics, such as type of product or extent of product differentiation, although intermarket differences may come into play in explaining the diffusion process across geographic markets. Specifically, this study analyzes the early diffusion of the optical scanner through the food store industry in the largest U.S. metropolitan areas. The early rate of diffusion of this innovation varies considerably across these markets, and this research attempts to identify economic variables that can explain the observed variation.