Innovation, components and complements

Every now and then a technology, or set of technologies, comes along that offers a rich set of components that can be combined and recombined to create new products. The arrival of these components then sets off a technology boom as innovators work through the possibilities. This is, of course, an old idea in economic history. Schumpeter (1934), p. 66 refers to “new combinations of productive means. ” More recently, Weitz-man (1998) used the term “recombinant growth. ” Gilfillan (1935), Usher (1954), Kauffman (1995) and many others describe variations on essentially the same idea. The attempts to develop interchangeable parts during the early nine-teenth century is a good example of a technology revolution driven by com-binatorial innovation.1 The standardization of design (at least in principle) of gears, pullies, chains, cams, and other mechanical devices led to the de-velopment of the so-called “American system of manufacture ” which started in the weapons manufacturing plants of New England but eventually led to a thriving industry in domestic appliances. A century later the development of the gasoline engine led to another wave of combinatorial innovation as it was incorporated into a variety of devices from motorcycles to automobiles to airplanes. As Schumpeter points out in several of his writings (e.g., Shumpeter ∗This is an excerpt from my Mattioli Lectures on the economics of information tech-nology, delivered in Milano, Italy