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Economics of Product Development by Users: The Impact of "Sticky" Local Information

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  • Eric von Hippel

    (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

Abstract

Those who solve more of a given type of problem tend to get better at it---which suggests that problems of any given type should be brought to specialists for a solution. However, in this paper we argue that agency-related costs and information transfer costs ("sticky" local information) will tend drive the locus of problem-solving in the opposite direction---away from problem-solving by specialist suppliers, and towards those who directly benefit from a solution and who have difficult-to-transfer local information about a particular application being solved, such as the direct users of a product or service. We examine the actual location of design activities in two fields in which custom products are produced by "mass-customization" methods: application-specific integrated circuits (ASICs) and computer telephony integration (CTI) systems. In both, we find that users rather than suppliers are the actual designers of the application-specific portion of the product types examined. We offer anecdotal evidence that the pattern of user-based customization we have documented in these two fields is in fact quite general, and we discuss implications for research and practice.

Suggested Citation

  • Eric von Hippel, 1998. "Economics of Product Development by Users: The Impact of "Sticky" Local Information," Management Science, INFORMS, vol. 44(5), pages 629-644, May.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:5:p:629-644
    DOI: 10.1287/mnsc.44.5.629
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    References listed on IDEAS

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