Entrepreneurship question?

Discussion in 'Homework Help' started by Saviour Muscat, Jan 2, 2016.

  1. Saviour Muscat

    Thread Starter Member

    Sep 19, 2014
    Hi friends
    One month ago I havve started an engineering course part time, a dream come true , with your continuous help I found the courage to attend this type of course and I making my wilful effort to success in this challenge. I have started programming and entrepreneurship, with the latter I am reading a book Democratizing Innovation by Eric Von Hippel, that can be found easily on Google. I have been stuck on chapter 8, page 110 about a quoted text as shown below, I need your precious help to clarify regarding this thanks SM

    We found that the addition of innovation by users to these analyses largely

    avoids the welfare-reducing biases that had been identified. For example,

    consider “business stealing” (Spence 1976). This term refers to the fact that

    commercial manufacturers benefit by diverting business from their competitors.

    Since they do not take this negative externality into account, their private

    gain from introducing new products exceeds society’s total gain, tilting

    the balance toward overprovision of variety. In contrast, a freely revealed

    user innovation may also reduce incumbents’ business, but not to the innovator’s

    benefit. Hence, innovation incentives are not socially excessive.
  2. WBahn


    Mar 31, 2012
    Sounds like pop-psycho-babble to me.
  3. GopherT

    AAC Fanatic!

    Nov 23, 2012
    This refers to the benefit of new new competing products that meet a specific need. A second or third version help lower costs and create completion and improve the product. At some point, there are diminishing returns and even a negative impact as there is not enough volume to justify economies of scale manufacturing and fixed setup costs grow per finished unit. The new "flavors" help the company that introduces the new flavor but do not help society (I.e. Do not improve the welfare of society in general.

    Essentially says that the company gaining market share by launching an advanced product has gains but society does not benefit. Only more options (varieties) are available to fill an existing need in an existing market.

    Here they say that society is not be helped by creating an information free-for-all situation. Prices may drop to those of current manufacturing costs but there will be so many competitors in the market that no one has enough market share to set up cost effective manufacturing processes. And, instead of the mass availability of information leading to more innovation and improvements for society, the widely accessible know-how will lead to many more manufacturers making clones of existing products and no competitor will have high enough margins to innovate in the future or enough market share to manufacture cost-effectively.

    Ultimately, releasing all information does not help society or the individual (or company/competitor) that releases the information.
    Saviour Muscat and WBahn like this.
  4. WBahn


    Mar 31, 2012
    Much less babble and a much more coherent explanation.