The Impact of Market Size and Users' Sophistication on Innovation : The Patterns of Demand and the Technology Life Cycle

The aim of this paper is an investigation on the role of demand in industrial dynamics. Despite the decades-long debate on demand and innovation, theory still lacks a comprehensive 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 main outcome, the paper proposes both a theoretical taxonomy of sectors and an original explanation of technological life cycle