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The Diffusion of New Technology and the Market for an Innovation

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  • Herman C. Quirmbach
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    Abstract

    This article shows that the diffusion of a capital-embodied process innovation results from a pattern of decreasing incremental benefits and adoption costs for later adoptions. Strategic behavior is inessential to this finding. We develop a method for comparing diffusion rates for different market structures in the capital equipment market. We consider cases with market power on the seller's side of the market and on the buyers' side of the market, a case with no market power, and the welfare-optimal case. We find that a joint venture adopts an innovation more slowly than other market regimes to protect existing capital investments and that the adoption rate is slower than is socially optimal. A monopoly supplier, on the other hand, adopts at a rate faster than is socially optimal. This result is usually also the case when there is no market power. Finally, we show that the monopoly supplier accelerates adoptions faster than in the case where there is no market power, but retards later adoptions. Market power thus makes a difference in diffusion rates, and on which side of the market that power lies makes a considerable difference.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 17 (1986)
    Issue (Month): 1 (Spring)
    Pages: 33-47

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    Handle: RePEc:rje:randje:v:17:y:1986:i:spring:p:33-47

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    Cited by:
    1. J. G. Smythe, 2002. "Reputation, public information, and physician adoption of an innovation," The European Journal of Health Economics, Springer, vol. 3(2), pages 103-110, June.
    2. A. Mahati & Rupayan Pal, 2013. "Competition, strategic delegation and delay in technology adoption," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-016, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Dinlersoz, Emin M. & Pereira, Pedro, 2007. "On the diffusion of electronic commerce," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 541-574, June.

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