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DOI: 10.1007/s00191-005-0264-x
J Evol Econ (2005) 15: 533565Saras D. Sarasvathy1 and Nicholas Dew21 Darden Graduate School of Business Administration, University of Virginia, PO Box 6550,Charlottesville, VA 22906, USA (e-mail: [email protected])2 Naval Postgraduate School, 1 University Circle, Monterey, CA 93943, USA(e-mail: [email protected])Abstract. Is new market creation a search and selection process within the theoretical space of all possible markets? Or is it the outcome of a process of transformation of extant realities into new possibilities? In this article we consider new market
creation as a process involving a new network of stakeholders. The network is initiated through an effectual commitment that sets in motion two concurrent cycles
of expanding resources and converging constraints that result in the new market.
The dynamic model was induced from two empirical investigations, a cognitive
science-based investigation of entrepreneurial expertise, and a real time history of
the RFID industry.Keywords: New market creation Effectuation Networks EntrepreneurshipJEL Classication: M13, M31, D4, D52, D71, D72, L1, L2, P421 IntroductionTraditionally, markets have for the most part been assumed as givens in economic
analyses. Even strategic and marketing management have taken their cues from the
exogenous markets of classical and neo-classical economics rooted in rational
choice at the micro level, and propelled at the macro level by the notion of Pareto
optimality. Take for example, Arrows (1974) admission, Although we are not
usually explicit about it, we really postulate that when a market could be created, it[star] We would like to thank the Batten Institute at the Darden Graduate School of Business Administration, University of Virginia, for supporting this research. We would also like to thank the following
on specic contributions to our thesis: Anil Menon for his relentless insistence on more precise formulations of effectual reasoning; Jim March for his conversation and for inspiring us to dig into Type I
and Type II errors; Rob Wiltbank for rming up the section on opportunity costs; and Stuart Read for
helping us clarify our writing.Correspondence to: S.D. Sarasvathyc
[circlecopyrt]Springer-Verlag 2005New market creation through transformation[star]534 S.D. Sarasvathy and N. Dewwould be. This postulate rests on the more general logic of optimal decision making, based on the application of well-dened preferences to a known opportunity
set.But the scope for this type of decision making, even when extended to include