COMPETITION DERIVED FROM INNOVATION AS A SUBSTITUTION THREAT

This paper is a review of the role of innovation as substitution threat. The interesting strategy for those facing what in retrospect proves to be full substitution is the strategy of ‘switch’ to the substituting technology. The context-dependent uncertainty involved in the switch decision is examined in three detailed cases; the nineteenth century alkali industry in England, IBM’s move into computer technology and the 1950s electronic valve manufacturers’ move into semiconductor transistors. The case material is used to introduce the problem competition policy has when faced with competition derived from innovation.