Faculty and Research

Capital Investment and Technological Competition

Carliss Y. Baldwin and Kim B. Clark are studying resource allocation in knowledge-based industries. Finding that traditional financial models of resource allocation do not explain the investment practices of high-tech companies, Baldwin and Clark embarked on a study of resource allocation in, and competition among, a small group of companies in the workstation industry. Specifically, they are trying to explain two anomalous characteristics of companies in this and other high-tech industries: they periodically become locked in a pattern of hyperaccelerated growth that demands substantial, repeated infusions of capital; and they span a high degree of vertical fragmentation with contracts and alliances. Baldwin and Clark are currently investigating the impact of system modularity on financial returns and the rate of technological change. Findings of their research are reported in a jointly-authored chapter in Competing in the Age of Digital Convergence, in the working paper "Modularity in Design: An Analysis Based on the Theory of Real Options," and in the article "Capital Investments in U.S. Companies after World War II," published in Business History Review. They are currently working on a book that ties the evolution of the computer to the increasingly modular design of computer systems.