The Thin Red Line between Success and Failure: Path Dependence in the Diffusion of Innovative Production Technologies
The wide variation in the success of innovations obscures similarities in the process of firms being influenced by other firms when choosing production technology. We argue that diffusion processes are similar across successful and failed innovations. Production asset innovation success results not only from innovation quality differences. Early chance events and subsequent path-dependence are intrinsic to diffusion processes. Thus, diffusion processes do not reliably spread the best innovations, producing competitive advantage for firms with an early lead producing innovations, and firms adopting high-quality innovations. We test these predictions quantitatively by analyzing the diffusion of the DC-10 and L-1011 airplanes, and find support for our theory linking the social information provided by firm adoptions to the success of innovative production technologies.