Abstract
The aim of this paper is an investigation on the role of demand upon innovation. Despite the decades-long debate on demand and innovation, theory still lacks an analytical formulation. This paper proposes a model where demand is conceived as a peculiar blend of two conditions, market size, and users’ sophistication. These conditions drive firms’ incentives to innovate. As the main outcome, the paper explores the underlying mechanisms of demand-pull theories and proposes a theoretical taxonomy of industries.
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Acknowledgements
I am really grateful to Ed Steinmueller for early inspiration and to Lorenzo Zirulia for his invaluable modeling skills. I would like also to thank Nicoletta Corrocher, Uwe Cantner, and Franco Malerba. Finally, scientific and moral support by Franco Donzelli has been priceless.