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Abstract
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This paper uses the music industry to demonstrate a model of technological change that explains the sources and timing of technological discontinuities and dominant designs. The process by which firms translate customer needs into products can be represented in terms of an interaction between customer choice and product design hierarchies. Technological improvements at lower levels in the product design hierarchy can change the design tradeoffs and thus affect movements up and down the hierarchies. Movements up the hierarchies lead to the emergence of new product classes (i.e., technological discontinuity) while movements down the hierarchies may result in the emergence of a dominant design in a specific product class.
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