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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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    Web page: http://www.rje.org

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    Web: http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi

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    Cited by:
    1. Saracho, Ana I., 1997. "The diffusion of a durable embodied capital innovation," Economics Letters, Elsevier, vol. 54(1), pages 45-50, January.
    2. Dutta, Prajit K & Lach, Saul & Rustichini, Aldo, 1995. "Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 563-89, Winter.
    3. Farzin, Y.H. & Huisman, K.J.M. & Kort, P.M., 1996. "Optimal Timing of Technology Adoption," Discussion Paper 1996-72, Tilburg University, Center for Economic Research.
    4. Philipp Köllinger & Christian Schade, 2006. "Endogenous Acceleration of Technological Change," Discussion Papers of DIW Berlin 562, DIW Berlin, German Institute for Economic Research.
    5. Adela Luque, 2003. "The Role of Technological and Industrial Heterogeneity In Technology Diffusion: a Markovian Approach," Working Papers 03-07, Center for Economic Studies, U.S. Census Bureau.
    6. Gomez, Jaime & Vargas, Pilar, 2009. "The effect of financial constraints, absorptive capacity and complementarities on the adoption of multiple process technologies," Research Policy, Elsevier, vol. 38(1), pages 106-119, February.
    7. Raouf, BOUCEKKINE & Omar, LICANDRO & Antonio, MINNITI, 2004. "Adoption and diffusion of cost reducing innovations : Cournot competition in duopoly," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004027, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    8. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.
    9. Emin M. Dinlersoz & Pedro Pereira, 2006. "On the Diffusion of Electronic Commerce," Working Papers 13, Portuguese Competition Authority.
    10. Adela Luque, 2002. "An option-value approach to technology adoption in U.S. manufacturing: Evidence from microdata," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 11(6), pages 543-568.
    11. Petrakis, Emmanuel, . "Technology diffusion in a differentiated industry," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2921, Universidad Carlos III de Madrid.
    12. Chrysovalantou Milliou & Emmanuel Petrakis, 2009. "Timing of Technology Adoption and Product Market Competition," CESifo Working Paper Series 2686, CESifo Group Munich.
    13. Jeffrey S. McCullough, 2008. "The adoption of hospital information systems," Health Economics, John Wiley & Sons, Ltd., vol. 17(5), pages 649-664.
    14. Fuentelsaz, Lucio & Gomez, Jaime & Polo, Yolanda, 2003. "Intrafirm diffusion of new technologies: an empirical application," Research Policy, Elsevier, vol. 32(4), pages 533-551, April.
    15. Seim, Katja & Viard, V. Brian, 2006. "The Effect of Market Structure on Cellular Technology Adoption and Pricing," Research Papers 1876r, Stanford University, Graduate School of Business.
    16. James G. Mulligan & Nilotpal Das, 2005. "Persistent Adoption of Time-Saving Process Innovations," Working Papers 05-03, University of Delaware, Department of Economics.
    17. Blackman, Allen, 1999. "The Economics of Technology Diffusion: Implications for Climate Policy in Developing Countries," Discussion Papers dp-99-42, Resources For the Future.
    18. Chung, Kun-Jen & Tsou, Ching-Shih, 1998. "Analysis and algorithm for the optimal investment times of new manufacturing technologies in a duopoly," European Journal of Operational Research, Elsevier, vol. 109(3), pages 632-645, September.
    19. Rui Baptista, 1999. "The Diffusion of Process Innovations: A Selective Review," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 6(1), pages 107-129.

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