Relationship between technological improvement and innovation diffusion: an empirical test

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 the improvement in performance during the diffusion process increases the diffusing desirability of the product. However, there has been no broad empirical attempt to examine this effect and clarify its underlying cause. Therefore, this study reviews the theoretical basis and focuses upon empirical tests of this effect across multiple products and their underlying technologies. The results for 18 diffusing products show the expected relationship (faster diffusion for products based on more rapidly improving technological domains) between technological improvement and diffusion with vital statistical significance. The empirical examination also demonstrates that technological improvement does not slow down in the later stages of diffusion when penetration slows down. This finding indicates that the diffusion slowdown in the later stages is due to market saturation effects and not to a slowdown in performance improvement.