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OCR for page 76
5
Government Regulation:
The Evolution of Public Demands
on the industry
THE ORIGINS OF REGULATION
The development of automotive technology during the last 10
years has been strongly affected by government mandate. A
variety of congressional committees and regulatory agencies have
issued rules and standards intended to enhance safety, reduce air
pollution, and cut fuel consumption. Although new in kind and
degree, these demands on the auto industry are hardly without
precedent. Almost from its inception, the automobile has had a
far-reaching influence on the life of the nation. As a result,
manufacturers have long had to meet both the evolving demands
of the marketplace and the requirement of changing social
expectation, whether expressed in the form of explicit govern-
ment action or merely of diffuse public sentiment.
Public Demands in the Formative Years
At the turn of the century, many hailed the automobile as the
guarantor of public health in urban areas and awaited the arrival
of the "horseless age" with high expectations. Yet the American
romance with the automobile sprang from deeper motives than the
desire of city dwellers to be rid of the horse. First and foremost,
the automobile statisfied a pervasive desire for personal mobility.
Horses and bicycles had obvious limitations trolleys and railroads
were rigid and inflexible. Moreover, rail-based transportation
appeared to the public not only as monopolistic, corrupt, and
unscrupulous but also--given its insatiable need for rails, tunnels,
and overhead wires--as capital intensive, cumbersome, and
centralized. In contrast,the automobile was quick, inexpensive,
and immensely flexible. Timing and destination were at the
discretion of the individual. A transportation system based on
76
OCR for page 77
77
the car was at once democratic and decentralized. It required
roads but little else.
Although the desire for personal mobility was the principal
force behind private demand for automobiles, that demand had a
social dimension as well. In an age of growing urbanization and
industrialization, the car seemed a solution to many of the prob-
lems of large cities. It removed the horse, gave people access to
the countryside, and offered (in the words of one proponent) to
"eliminate. . . the nervousness, distraction and strain of modern
metropolitan life."2 In turn, suburban living could become a
quality, and some observers waxed eloquent in their descriptions
of it:
I magine a healthier race of workingmen, toiling in
cheerful and sanitary factories, with mechanical skill and
trade-craft developed to the highest, as the machinery
grows more delicate and perfect, who, in the late after-
noon, glide away in their own comfortable vehicles to
their little farms or houses in the country or by the sea
twenty or thirty miles distant They will be healthier,
happier, more intelligent and self-respecting citizens
because of the chance to live among the meadows and
flowers of the country instead of in crowded city streets.3
In a heavily urban, industrial society, still wedded to the values
of rural/agrarian life, the automobile had a social value beyond its
private appeal. Between 1910 and 1925 the widespread use of the
car was viewed as a progressive force in America, and its manu-
facturers were accorded the respect due members of an industry
that effectively met at a reasonable price the demands made of it.
The private and public demands facing the industry in its early
years were consistent and mutually reinforcing. Antitrust
activity, no less than the desires of the consuming public, favored
the mass production of automobiles. In 1903, Henry B. Joy of
P ackard, Frederick Smith of the Olds Motor Works, and several
other prominent manufacturers joined with the Electrical Vehicle
Company, which held the Selden patent on the gasoline automo-
bile, to form the Association of Licensed Automobile Manufac-
turers (ALAM).4 ALAM members, largely high-priced producers
catering to the luxury market, sought to limit entry by granting
licenses only to manufacturers with prior experience in the
business. Although a number of independent producers dis-
regarded the Selden patent and entered the industry, the ALA M
held 80 percent of the market in 1907.
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78
Early in its history, ALAM rejected Henry Ford's application
for a license and thereby earned itself an implicable foe. Ford,
which sought to produce a car for the great multitudes, fought the
patent and the ALAM almost singlehandedly. Court action initi-
ated by ALAM led to a decision in Ford's favor in the federal
courts that hastened the demise of ALAM. When Ford himself
came to dominate the market with his Model T. the integration of
production proved a far more effective barrier to entry than the
Selden patent, and there was no hint of antitrust activity. Both
public policy and private need smiled on the growth of that kind of
large-scale enterprise.
A similar convergence of interest emerged with the federal
government's long-term commitment to building and upgrading
roads to complement the use of the automobile. The sheer magni-
tude of the expenditures was extraordinary, but more remarkable
still was the widespread popularity of state and local taxes--on
property as well as gasoline--to support road construction. As
Flink has remarked:
Public support for heavy motor vehicle special use taxes is
a case in point. Motorists early came to support higher
and annual registration fees as one means of securing
better roads. For the same reason, there has consistently
been almost no public opposition to the gasoline tax. By
1929 all states collected gasoline taxes, which amounted
to some $431 million in revenue that year, and rates of
three and four cents a gallon were common. In 1921 road
construction and maintenance were financed mainly by
property taxes and general funds, with only about 25
percent of the money for roads coming from automobile
registration fees.5
The New Deal and the War Years
Public demands on the industry in the New Deal era were little
changed from the 1910-1925 period. Expanded highway construc-
tion further enhanced personal mobility, and the rhetoric of some
New Dealers (even FOR himself) continued to idealize the notion
of new communities that would combine the best of rural and
urban life. Although the bulk of New Deal legislation (e.g., the
National Recovery Act) had only minor effects on the auto
industry, the passage of the Wagner Act, which legitimized
collective bargaining, led to the organization of unions at General
Motors (GM) and Chrysler in 1937 and Ford in 1941. Unionization
has, of course, been of obvious importance in the industry's
development, but in terms of products developed, markets served,
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79
and strategies employed, the social demands made on the industry
during the 1930s largely continued trends begun much earlier.
With the coming of World War II the industry's public responsi-
bility was direct and clear cut--mobilize. The conversion to war
production involved not only changes at the plant level but also the
transfer of many top executives to high-level government pos i-
tions. For example, William S. Knudsen, President of GM, was put
in charge of war production in the War Department. And the
industry produced. The magnitude of its contribution was striking,
millions of guns, trucks, tanks, engines, and airplanes--in all, over
one-fifth of all defense production. As John B. Rae has argued:
The automobile industry was the country's greatest
reservoir of "know how" and skill in the technique of
making, accurately and reliably, the largest possible
number of items in the shortest time.6
A Shift in Perceptions
At the end of the war, most agreed with Rae that U.S. superiority
in mass production techniques had been a major factor in the
successful war effort. The auto industry was viewed as a valued
national resource; its leaders were called on to serve in responsible
public positions; its capabilities were admired and respected.
This attitude lasted into the 1950s. In the period following the
Korean War, a variety of concerns about the automobile industry
and its impact on society began to surface. Initially focused on
dealer practices, public scrutiny of the industry shifted to issues
of pollution and safety? The emergence of these issues reflected,
in part, the maturity of the industry. Not only were consumers
becoming more sophisticated, but the sheer size of the U.S. car
f feet made the side effects of driving more noticeable. Thus,
while fatalities per mile driven were either stable or falling in the
1 950s, the total number of fatalities increased by 50 percent,
reaching 30,000 by 1956. Likewise, in large urban areas, most
particularly Los Angeles, the deterioration of air quality was
noticeable.
At the outset, pollution and safety were not burning national
issues. N ewspaper coverage was infrequent and often buried in
the back pages; congressional involvement was limited to modest
authorizations for studies of the health risks imposed by smog and
to a series of hearings before a small House subcommittee on
traffic safety. Yet even these modest probes of the industry and
its product marked an important change in the social demands
made on the manufacturers. The mid-1950s witnessed the
beginning of divergence between private desires, as expressed in
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80
t he market, and public concerns. At a time when the market
sought larger, more powerful, more exciting automobiles, society
generally began to question the effect of such cars on public
health and safety.
Disagreement and debate were perhaps inevitable, yet there
was nothing inevitable about the form of that debate or of its
results. Somewhere between 1953 and 1970 the public view of the
industry was transformed. Its image of dynamic growth, superior
technology, and progress gave way to one of unprincipled social
irresponsibility.
The Emergence of Regulation by Adandate
The public search for cleaner air and safer highways emerged in
full force in the mid-1960s. A burgeoning environmental move-
ment, a growing aversion to large institutions and concentrations
of power, and a backlash against wealth and conspicuous consump-
tion made the automobile an easy target. Political points could
easily be scored by attacking the industry on its safety record and
on pollution, and this politicization of the issues had an enormous
impact.
The issue of safety is instructive.8 Rising numbers of auto
fatalities in the early 1960s brought the issue of auto safety under
greater public scrutiny. Hearings on auto safety were initiated in
the Senate during 1965, primarily under the auspices of Senator
Ribicoff's Subcommittee on Government Operations. Industry
representatives reported on their companies' efforts to increase
auto safety and stressed the need to include the effects of roads
and drivers in any consideration of traffic safety. In November
1965, Ralph Nader's book, Unsafe at Any Speed, indicted the
industry for what Nader believed was a callous disregard of the
consumers' "body rights."9 The book helped focus government
attention on the role of vehicle design in crash survivability.
In early 1966 President Johnson called for a highway safety act
to "arrest the destruction of life and property on our highways."
Senator Ribicoff again held hearings on safety, and the Senate
C ommerce Committee heard testimony on the administration's
bill. Those hearings were conducted in a heavily politicized
atmosphere. A few days before they began, GM's investigation of
Ralph Nader was revealed, and GM executives were summoned
before Senator Ribicoff's committee. Their lame explanations
helped fix in the public mind the image of a big corporation
harassing a concerned citizen. Before the GM-Nader incident the
passage of some sort of legislation mandating regulatory standards
had by no means been certain. Now it was.
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81
The administration's bill called for the Secretary of Commerce
to set federal standards for equipment if, after two years, he
determined that the automobile industry had not developed
adequate standards of its own. As the hearings before the
Commerce Committee got under way, the auto industry endorsed
the goals of the administration's bill but suggested, instead, a
voluntary plan. The political climate would not allow this, and the
industry shortly changed its position in testimony before the House
Interstate and Foreign Commerce Committee and supported
federal authority to set safety standards. The Senate then passed
a bill calling for mandatory standards, and President Johnson
signed it.
Partly because of GM's response to Nader and partly because
of the political climate, the public demand for safer vehicles came
to be embodied in a regulatory process involving mandatory
standards, with the government and industry essentially in oppo-
sition. The adversarial nature of the process was further
sharpened in the debate over pollution. The government's first
effort to control emissions, the 1965 amendments to the Clean Air
Act of 1963, gave standard-setting authority to the U.S.
Department of Health, Education, and Welfare (HEW). The initial
legislation gave due weight to economic and technical considera-
tions, and the regulations eventually developed in 1966 set fairly
long-term standards that the industry believed it could meet.
Industry optimism was short lived. In January 1969 the Justice
Department charged the major producers with conspiracy to delay
development of devices to control pollution. Settled by a consent
decree in September 1969, the suit tarnished the industry's image
and changed its relationship with the government.
In November 1970 the Senate, taking stock of new realities,
passed amendments to the Clean Air Act that established a
standard of 90 percent reduction in pollutants over allowable 1970
levels to take place by 1975-1976. Furthermore, the Senate
required that control devices be effective for 5 years or 50,000
miles and that administration of the law be taken from HEW and
placed in the hands of the newly created U.S. Environmental
Protection Agency (EPA).
The law's provision for an optional delay of the standard by
EPA led to a long series of public arguments, requests for
extensions, and judicial and administrative proceedings, which
resulted in a one-year extension. In the course of this debate,
industry representatives made a series of arguments that subtly
reinforced the image of footdragging and reluctance. The industry
position progressed from "technologically it can't be done" through
"the technology is untried and untested" to "it can be done, but it
will cost so much it is not justified." Elliot Estes, President of
GM, summed up the effects of the industry's approach:
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82
In dealing with the government--and in raisin g
questions and explaining the possible difficulties and costs,
we have reinforced the negative image that many people
have of us--I don't know how it can be avoided.
In all honesty, we have contributed to this lack of
credibility because we wanted to see some promising
results with real hardware before we predicted our ability
to make progress in meeting some of these standards and
rules.1 °
The pattern of regulation established for emissions has strongly
influenced the government's approach and the industry's response
to fuel economy. Choosing not to rely on taxes or the price of
fuel to spur demand for smaller, more efficient vehicles, the
government opted for direct regulation of fuel economy through
the setting of standards by Congress and the administration of
those standards by an executive agency.
The decisive year was 1975. After several months of public
s tatements, hearings, and proposals, President Ford obtained in
early 1975 voluntary commitments from the major producers for a
40 percent fuel economy improvement by 1980 in exchange for a
five-year moratorium on emissions standards. The industry hailed
the agreements, but Congress proceeded to advance more strin-
gent requirements. Efforts to impose various kinds of taxes on
less efficient cars were discarded in favor of a bill requiring a
mandatory level of average fuel economy for the corporate fleet.
The industry questioned the viability of imposing cars with
specific characteristics on a market that might not want them.
Mandatory standards grew in political appeal, however, and
President Ford abandoned his earlier agreements and signed the
Energy Policy and Conservation Act of 1975 into law.
An Adversarial Environment
The motor vehicle regulatory environment that emerged in the
1970s is best characterized as a combination of congressional and
agency rulemaking with administrative and judicial review. It is
an inherently adversarial process, one that relies on the ex parse
use of political power to achieve social objectives, for it took
shape in an era when public opinion viewed the industry as a "bad
guy" that had to be closely regulated. Indeed, the legislative
record suggests that some members of Congress and their staffs
have typically operated on the assumption that, if the industry
does not oppose it, it must be too lenient.
The automobile companies must, of course, bear partial
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83
responsibility for this poor relationship with government, but the
explanation cannot simply be bad judgement, irresponsible
behavior, or a lack of moral fiber in their leaders. There is, first,
the growing divergence in the 1953-1975 period between the
private and public demands made on the industry. A good part of
the industry's position on safety emissions and fuel economy
sprang, after all, from its desire to meet perceived market
demands. But there is also the substantial ambiguity inherent in
the regulatory process itself.
The regulation of emissions, safety, and fuel economy involves
ultimate objectives (e.g., safe highways) that are relatively
uncontroversial, but practical means (e.g., specific equipment
standards) that are open to debate. Further, even where
standards and objectives are clearly linked (e.g., Corporate
Average Fuel Economy standards), there may be technological
uncertainty associated with both production and performance. 3
Recent regulatory history has been f illed with technological
"optimism" on the part of regulators and "pessimism" on the part
of the manufacturers. Experience has shown, however, that
neither position is always justified. The development of the
catalytic converter allowed the auto companies to meet emissions
standards that they had once claimed were impossible, yet new
fuel- economy goals created technical difficulties in meeting
emissions targets by established deadlines.
~ . . . . . . .
THE IMPACT OF REGULATION
ON COMPETITION A N D I N N OV ATIO N
Government involvement in safety, pollution, and fuel-economy
decisions played a significant role in the design and manufacture
of automobiles in the United States in the 1970s. A full analysis
of the impact of regulation--on objectives and on overall economic
and social welfare--is far beyond the scope of this report. It does
seem clear, however, that the rules and laws adopted have not
been neutral in their impact on competition or on the introduction
of new technology.
Competition and Regulation
The form of regulation governing the automobile in the United
States--mandatory standards administered by an executive
agency--imposes a single set of standards on companies employing
different competitive strategies and enjoying quite different
capabilities. 4 Such regulation inevitably affects each fir m
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84
differently and thus alters relative competitive positions. A brief
discussion of the difference between the G M and the Chrysler
positions on the 1970 amendments to the Clean Air Act highlights
the differential strategic impact of regulation.
From G M's perspective, the catalytic converter--and the
legislation to make it mandatory--had several advantages. It was
a familiar technology and, as an add-on device, limited the need
for fundamental changes in established manufacturing and
assembly skills. Furthermore, as a backward-integrated firm, GM
could view catalytic converters as a source of profit. Converter
technology reinforced existing GM strategic strengths and did not
make existing corporate strategy obsolete.
Chrysler had a different strategic exposure to catalytic con-
verters. The technology was relatively unfamiliar; as an add-on
device it did little to create an opportunity for Chrysler to
improve its competitive position against other domestic producers;
as one of the least vertically integrated domestic producers,
Chrysler had little opportunity to capture any value-added in
manufacture or assembly of the devices.
Chrysler's preferred compliance technology, which involved
electronic technology and the lean-burn engine, played to its
historic strength as an engineering-oriented firm. It did not
penalize the firm for its lack of vertical integration and, indeed,
made the relatively inflexible backward-integration strategies of
its competitors less attractive. As a knowledgeable innovator in
this area, Chrysler looked on such a technology as a competitive
opportunity, just as GM did the catalyst. Government standards,
however, finally ruled out all options but the catalytic converter.
This kind of competitive consequence is a general feature of
regulation in an environment where firms pursue different
strategies and possess different kinds of technical competence.
While proponents of regulations can (and do) claim some measure
of success in forcing the adoption of the catalytic converter
(among other innovations), the impact on competition and the
relative success of the producers must also be weighed in the
balance.
This becomes particularly evident in comparisons of domestic
~~ ~ ~ is introduced as a factor
all com-
and foreign producers. When regulation
in international competition, it is often said that since
petitors must meet the same standards, regulation must be
competitively neutral. However, where stationary regulations
(e.g., those of the U.S. Occupational Safety and Health Admini-
stration, and EPA's water and air pollution regulations) are not
comparable, the overall regulatory impact may be different in
different countries. Moreover, the notion that regulation is
neutral ignores the fact that firm capabilities and circumstances
are not identical. In a period of crisis and transition, such as the
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85
current one, heavy demands are placed on scarce resources simply
to survive. Regulation that competes for those resources but that
does not enhance a firm's competitive position becomes an added
drawback. Although much has been made of the capital cost of
regulation, the more critical and scarce resource is likely to be
the time, energy, and attention of knowledgeable and talented
individuals.
Innovation and Regulation
Proponents of government involvement in product design often
point to a series of innovations that have emerged in response to
mandated standards. And it is true that a number of technical
advances can trace their origins (at least in part) to regulatory
action. Yet in a more general sense it is not clear that the pace
and character of innovation is necessarily enhanced by mandated
standards.~5 To see the potential barriers to change inherent in
regulation, it is important to distinguish between the radical or
epochal innovations characteristic of the early stages of produc-
tion development and the incremental innovations that dominate
as a product matures. These two patterns of development may be
observed at the same time when radically new products are intro-
duced that challenge existing technology.
Epochal innovation involves the identification of new needs or
a new way of meeting old needs; it is essentially entrepreneurial in
nature. It competes with the existing technology on the basis of
performance rather than cost. Because markets for the new
product are apt to be ill defined and because the manufacturing
process is apt to be both labor intensive and fluid, the entre-
preneurial firm may continue to make dramatic changes in the
new concept. In this context, thin specialty markets play an
important role in the development and commercialization of a new
technology. Buyers in such markets share common traits: (1) a
w illingness to pay high premiums for superior performance in a
few limited dimensions and (2) a willingness to accommodate some
performance deficiencies in the new technology compared with
existing competitors.
It is important to understand how the relationship between
thin, performance-oriented markets and established mass markets
affects the process of successful innovation and commer-
cialization. At the point of introduction the new product is very
vulnerable. It is often introduced by small, entrepreneurial firms
or organizations that lack the resources to undertake major risks
or to sustain high rates of R&D expenditures. The greater the
established product's economies of scale and production volume,
the greater the need for robust specialty markets to nurture
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86
i nnovations until they are able to compete within established
markets.
Government regulation can alter the innovation process
through its effect on thin specialty markets. While the inhibiting
effects of regulation can be subtle, they are nonetheless powerful
and pervasive. The normal patterns of interaction between thin,
high-performance markets and established markets may be
disrupted in three distinct but related ways: (1) barriers to the
initial development of new competing technolo~v mav increase.
(2) existing technology may
v ~ —, ~ I'
be enveloped with regulatory
requirements so that no new technology can fully satisfy the web
of constraints so created, and (3) regulation may encourage the
entrenchment of current technology within the industry by
diverting all discretionary resources to improve existing
technology.
The most obvious and frequently cited consequence of regula-
tion on the innovation process is the barrier erected to the initial
development of new products. This barrier results from the
increase in resources, costs, and risks involved in developing and
introducing new technologies. Turbochargers in California provide
a useful example. 6 In the 1960s California erected a regional
barrier to turbocharger development that had national
implications. According to market surveys, California was the
largest potential after-market for turbochargers, but the state
prohibited turbocharger installation pending certification by its
Air Resource Board. Certification required a durability test of at
least 30,000 miles and thereby imposed requirements that were
simply too complicated and costly for the small firms manufac-
turing turbochargers. Thus, as a direct consequence of regulation,
the thin speciality market that California offered for developing
turbochargers for automotive passenger cars never materialized,
setting turbocharger development back a number of years.
Experience with air bags and air brakes suggests that uncer-
tainty over standards also can serve as a barrier to innovation by
supplying firms. As previously noted, the problem of setting clear
and certain requirements is inherent in the nature of the regula-
tory process.
Though regulation may increase barriers to new firms seeking
entry into the industry with innovative technology, it may also
affect the involvement of established firms in the innovation
process. Steadily tightening regulatory requirements forces
companies to divert discretionary resources into programs to
improve existing technologies, in effect entrenching the current
technology within the industry. While this encourages more rapid
incremental innovation, it may also discourage the entry of firms
undertaking needed longer-term advances or epochal innovations.
An intensification of regulation, whether by adding new kinds of
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87
requirements or by tightening existing ones, requires the manu-
facturer to devote even greater resources to the existing tech-
nology and market. As new requirements create new demands,
R&D tasks associated with each change become more complex,
costly, and subject to risks. Each change, too, becomes more
costly while at the same time more changes are required.
This escalation of development cost and complexity is clearly
evident in the engineering interactions on new engine develop-
ment new requirements and components interact with each other
so that the effect on the number of subordinate design tasks, tests,
and, ultimately, costs is more nearly multiplicative than additive.
For example, the interaction of tough fuel-economy and emissions
requirements for automotive engines has led to the addition of
much more complex engine-control technology and carburetion
systems, as well as catalytic converters and related components.
Similar effects are reported for other drive-train components.
The causes of entrenchment are subtle; their consequences,
however, are vitally significant for firms in the industry. For
example, to obtain the resources it needs to compete successfully
in the highly regulated U.S. market, Chrysler has divested itself of
many of its extensive foreign operations. In Ford's recent report
on the state of the automobile industry, it documents a need for
an additional billion dollars (adjusted for inflation) above its
recent, historically high rate of capital investment in order to
remain competitive in North America through 1985.
By far the most subtle influence of regulation on the innovation
process is regulatory envelopment. The stream of automotive
regulations in the last decade has broadened substantially from the
m inimum safety and pollution-control regulations of the early
1960s to the more extensive standards and rules of the late 1970s;
Eugene Goodson has counted 237 regulatory changes pertaining to
automobiles and light trucks from 1960 through 1975.~7 In this
evolution of standards and rules, regulators have often favored
performance regulations over design standards in order to preserve
the manufacturers' freedom to innovate. They have also limited
regulations to specific objectives and based them on the best
available technology. In attempting to protect the innovative
process by undertaking piecemeal regulations, however,
government agencies may have achieved the opposite result. They
may have created a sequence of independent regulatory actions
that, taken as a whole, form a tightening web of constraints that
envelop the existing technology.
Fragmented performance regulations issued by different
organizations become an overall design standard when the auto-
mobile is considered as a single, integrated system. This unified
design standard bars the entry of initially imperfect but
potentially useful new technologies. The barrier effect may
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88
thwart the initial development of a new technology; envelopment
bars the acceptance in established markets of such innovations as
are made.
Honda's CVCC program illustrates how envelopment may lead
even a highly creative company to innovate incrementally. In
their search for an engine concept that offered a competitive edge
under impending U.S. and Japanese fuel-economy regulations,
Honda's engineers rejected more radical engines such as the
~Jankel, steam, and electric. These engines were incompatible
with the emissions, durability, cost, produceability, and fuel-
economy profiles of current engines. Honda's engineers decided to
develop instead the 50-year-old idea of charge stratification,
relying on a particular combustion chamber configuration much
like the Russian production-model Nilov engine. This more incre-
mental approach has been successful.
The case of electric vehicle certification under Section 212 of
the Clean Air Act provides a contrasting example of blocked
innovation. In an effort to encourage innovation with respect to
emissions requirements, Congress authorized the U.S. General
Services Administration (GSA) to pay a premium of more than 100
percent for low-emission vehicles to be used by federal agencies.
In effect, Congress attempted to create through federal procure-
ment policy a thin specialty market. Only three manufacturers of
low-emission vehicles applied. All three offered electric vehicles
that certainly met the emission requirement but that failed to
meet other regulatory and GSA performance standards, which
were based on vehicles then in use by the government. None of
the applications led to Section 212 purchases. It is important to
see the contradiction at work here. While the legislation provided
a price incentive to support an essential but thin, performance-
oriented market, it neglected to protect the developing product by
relaxing regulations or standards geared toward the existing
technology.
The existence of thin. high-performance markets has been of
Importance in the process of innovation. In light of the role of
thin markets in furthering radical innovation, regulation often
creates a paradox: while encouraging more rapid progress through
incremental innovation in established products, intense regulatory
pressure can also inhibit epochal innovation by its effect on thin
markets, by increasing barriers to development of new technolo-
gies, by entrenchment, and by enveloping existing technologies.
.
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89
NOTES
1. This section draws on the work of Flink. For a more
extensive discussion, see Flink (1970) and (1975) and the sources he
cites.
2. Flink (1975), p. 39.
3. Ibid., p. 40.
4. A thorough treatment of the ALAM is found in Rae (1959),
pp. 67-85.
5. Flink (1975), pp. 149-150.
6. Rae (1965), pp. 152-159.
7. For a discussion of the politics of safety regulation, see
Halpern (1972~.
8. The chronology used here follows that developed in
unpublished work by Karen Tracy of the Baker Library, Harvard
Business School. For emissions and fuel economy, see Tracy
(1978~. Additional insight is provided in several articles included
in Ginsburg and Abernathy (1980\ see especially those by Mills,
Seiffert, and Kaspar.
9. Nader (1965~.
10. Cited in Tracy (1976~.
11. Implications of this form of regulation for fuel economy
are examined in John et al. (1980), pp. 118-143.
12. Disagreement over process is examined in Leone et al.
(1980) and in Mills (1980~.
13. See Leone _ al. ~ 1980~.
14. This section draws on the analysis presented in Leone et
al. (1980~; see also Hanson (1980~.
15. The sub ject of innovation and regulation has generated
substantial literature. The perspective presented here relies on
concepts and analysis developed by Abernathy (1980~; this section
condenses one argument presented by Abernathy.
16. See Ronan and Abernathy ~ 1978a) for an extensive
treatment of the introduction of the turbocharger.
17. Goodson (1977~.
18. Ronan and Abernathy (1978b).
Representative terms from entire chapter:
existing technology
