MARKET-SEGMENTATION AND THE SOURCES OF RENTS FROM INNOVATION - PERSONAL COMPUTERS IN THE LATE 1980S

We evaluate the sources of transitory market power in personal compute rs in the late 1980s to explain how high rates of imitative entry coex isted with high rates of innovative investment, We measure the impact of different principles of differentiation (PDs); each PD reflects a d istinct notion of product similarity offering a potential source of ma rket segmentation. One PD measures the substitutability between fronti er and nonfrontier products, while a second PD measures the advantage afforded by a brand-name reputation, We find segmentation along both d imensions, which meant that the effects of competitive events (such as entry) were localized, A high rate of entry was consistent with slow erosion of incumbent rents.