TIMING, DIFFUSION, AND SUBSTITUTION OF SUCCESSIVE GENERATIONS OF TECHNOLOGICAL INNOVATIONS - THE IBM MAINFRAME CASE

Based on the behavioral assumptions of diffusion theory, this article proposes an extension of the Bass diffusion model that simultaneously captures the substitution pattern for each successive generation of a durable technological innovation, and the diffusion pattern of the bas e technology. Normative guidelines based on the model suggest that a f irm should either introduce a new generation as soon as it is availabl e or delay its introduction to a much later date at the maturity stage of the preceding generation. The decision depends on a number of fact ors including the relative size of the market potentials, gross profit margins, the diffusion and substitution parameters, and the discount factor of the firm. This ''now or at maturity'' rule is thus an extens ion and generalization of the ''now or never'' rule of Wilson and Nort on [25]. Empirical and normative implications of the proposed model ar e explored for four successive generations on IBM mainframe computers: first generation (vacuum tubes); second generation (transistors); 360 family (integrated circuits); and 370 family (silicon chips). The mod el describes the growth of these generations well. The application of normative guidelines suggests that IBM introduced the two successive g enerations of 360 and 370 families too late, i.e., their time to marke t should have been shorter. Limitations and further extensions of the model and the application are discussed.