File 7: Creative Destruction and PC industry

Question 1

Give examples of emergence of new firms and displacement by other firms in the PC industry.

Answer 1

1. word processing: wordstar (1970)- wordperfect (1980)- word (1990-today)
2. spreadsheets: visicalc (1970)-lotus123 (1980)- excelt (1990-present)
3. pc: apple (1970), ibm (1980), many alternatives (1990-today)

Question 2

According to Breshnahan, why did established firms not manage to maintain their dominant positions? (2)

Answer 2

1. evolution of pc matched with evolution of purpose of pc: at first only hobbyist and game players users used pc. then spreadsheets and word processors become available for office users: ways of using pc broadened
2. progress of ease of use of pc thanks to GUI (graphic user interface)

Question 3

Why was there a quick growth in the pc market?

Answer 3

due to increase diverse use of pc and the easy access to pc

Question 4

Why didnt firms have to go head to head with firms already establish in industry?

Answer 4

bc og quick growth of market meant always new users to sell to

Question 5

Why did the PC industry allow for many new entry of firms?

Answer 5

1. industry provided general purpose technology: new users can be developed by subsequent innovators
2. industry is vertical intergrated: pc assembled from different producers => reduces barrier to entry
3. patent protection was weak : easy for producers to take product and improve it

Question 6

Explain the case displacement of Apple by IMB PC.

Answer 6

1. visicalc and wordstar increase demand for pc for office workers
2. increase demand provided ibm with opportunity who had a well established corporate customer base
3. due to vertical disintegration (multiple suppliers) allowed ibm to source components
4. apple did not have patent protection of components
5. vertical disintegration allowed dev of clones which competed based on superior product

Question 7

Explain the displacement of office application.

Answer 7

1. visicalc and wordstar had network effects: if u had the same software, easu to exchange, interpret => entry barrier for other firms
2. rapid growth in use of office application created market=> lotus 123 and word perfect sold to new corporate purchasers
3. dev of GUI further simplified pc use=> market expansions
4. integration of word and excel into operating system help spread their use

Question 8

What were the sources of creative destruction in the PC industry?

Answer 8

1. pc=general purpose technology which allowed for rapid growth in market (discover new use of pc)
2. improvement in accessibility and gui led to further market expansion
3. vertical disintegration menat new entry wa easy
4. patent proteciton was weak