Exploring the relationship between technological improvement and innovation diffusion: An empirical test

TL;DR

This study empirically tests how faster technological improvements lead to quicker product diffusion across various domains, confirming the positive relationship and clarifying that diffusion slowdown is due to market saturation, not technological stagnation.

Contribution

It provides the first broad empirical evidence linking technological improvement rates to diffusion speed across multiple products and clarifies the cause of diffusion slowdown.

Findings

Faster technological improvement correlates with quicker diffusion.

Diffusion slowdown is caused by market saturation, not technological stagnation.

Empirical evidence spans 18 different products and technologies.

Abstract

Different technological domains have significantly different rates of performance improvement. Prior theory indicates that such differing rates should influence the relative speed of diffusion of the products embodying the different technologies since improvement in performance during the diffusion process increases the desirability of the product diffusing. However, there has not been a broad empirical attempt to examine this effect and to clarify the underlying cause. Therefore, this paper reviews the theoretical basis and focuses upon empirical tests of this effect across multiple products and their underlying technologies. The results for 18 different diffusing products show the expected relationship-faster diffusion for products based on more rapidly improving technological domains- between technological improvement and diffusion with strong statistical significance. The empirical examination also demonstrates that technological improvement does not slow down in the latter parts of diffusion when penetration does slow down. This finding indicates that diffusion slow down in the latter stages is due to market saturation effects and is not due to slowdown of performance improvement.