The author of this article uses supply and demand econometrics to quantitatively describe the life cycle of new product introductions and their diffusion into the consumer marketplace. He establishes that there is interdependence between related products, and this is the basis by which one should study how new products are developed and introduced. Thus, color televisions and VCRs are used as the case study example.
In general, there are three steps that take place in consumer goods markets that induce new product introductions. First, once the existing product, in this case television, saturates the market to a certain level, the marginal cost to achieve sales growth exceeds marginal revenue. Second, due to disappointing growth prospects, manufacturers are induced to develop new and innovative products. In fact, with the VCR, Sony had the technology available, but only released the Betamax in 1977 when demand for television started to slow. Finally, once the new product is released, the demand functions for the two interrelated products (the VCR and TV) become intimately correlated. The overarching argument is that new products are more likely to be introduced when the demand for existing products declines due to market saturation.
Importance for thesis:
This paper helps make the conceptual argument, based on both marketing research and econometrics, that the evolution of new technologies is a market force. Thus, when media companies try to fight this inevitable evolution, they are inherently fighting a lost cause. This research empowers my thesis that media companies should have seen the VCR as an opportunity to grow profits, not as the end to their existence. Also, it supports my stance that adapting to new technologies is vital, considering the evidence that new technologies are born from emerging market demands. Thus, meeting these demands should lead to higher growth and profits than trying to stifle it.