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Technology and Market Structure: Theory and History
By John Sutton.
Cambridge, MA: MIT Press, 1998. Pp. xv, 676. $55.00.
John Sutton's study of technological change is an ambitious, rich, and important work. Changing focus from his 1991 book on advertising and market structure, Sutton's attention here is on technological change as a determinant of market structure. The book's contribution is a fresh application of game theory to the interactions of technological change, economic history, and market outcomes. The undertaking even requires 140 pages of mathematical and descriptive appendices!
The book is organized into three parts. Part One presents Sutton's study of market entry utilizing a stage-game theory. Entry is analyzed utilizing an escalation parameter alpha (at). Alpha is a ratio of the profitability for a new entrant relative to current expenditures on research and development (R&D) by existing firms or "a measure of the extent to which a firm that outspends its rivals on R&D can thereby raise [demand]" (p. 63).
Sutton uses a simple lottery analogy to...