Variety and niche creation in aircraft, helicopters, motorcycles and microcomputers

Evolutionary theories of economic development stress the role of variety as both a determinant and a result of growth. Our empirical understanding of the role of variety, however, is still limited. We propose two variety measures, one based on entropy and one based on Weitzman's maximum likelihood procedure. It is argued that the two measures are complementary since they highlight different aspects of variety. Entropy is based on frequencies and indicates the statistical variety, while Weitzman's measure is based on the distance between products, and indicates the degree and structure of differentiation of a population. We apply the measures to product characteristics of four technologies (aircraft, helicopters, motorcycles, and microcomputers). The results on the three transport technologies show classic evolutionary specialisation patterns that can be understood on the basis of niche theory. In these cases, the changes in variety are related to changes the scope of services a technology can deliver analogous to the size of a habitat of a biological species. The results on microcomputers call for another explanation, since we found that variety decreased while the scope of services increased rapidly. In this case, the rapid fall in costs per unit service decreased so rapidly that the lower end of the market continuously disappears when the higher end of the market is extended. The results on microcomputers call for extending niche theory including the rate of change in costs.