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Irreversible Choice of Uncertain Technologies with Network Externalities

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Author Info
Jay Pil Choi

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Abstract

In this article, I explore the problem of sequential and irreversible technology choice in the presence of network externalities when the technologies stochastically evolve over time. Early potential users are shown to adopt an irreversible technology too early compared to the social optimum. The effect of increasing the uncertainty of the technologies on an early potential user's decision is analyzed. I find that the sponsor of new emerging technology might choose a research strategy that is too safe. I also study the consequences of allowing side payments between generations of consumers and demonstrate that an ex post optimal standardization policy can impair ex ante social welfare.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28199423%2925%3A3%3C382%3AICOUTW%3E2.0.CO%3B2-A&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 25 (1994)
Issue (Month): 3 (Autumn)
Pages: 382-401
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Handle: RePEc:rje:randje:v:25:y:1994:i:autumn:p:382-401

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  1. Garance Genicot & Debraj Ray, 2003. "Contracts and Externalities: How Things Fall Apart," Levine's Bibliography 506439000000000235, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Mason, R. & Weeds, H., 2000. "Networks, Options and Preemption," The Warwick Economics Research Paper Series (TWERPS) 575, University of Warwick, Department of Economics. [Downloadable!]
    Other versions:
  3. Jay Pil Choi & Marcel Thum, 1997. "Market Structure and the Timing of Technology Adoption with Network Externalities," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Victor Stango, 2004. "The Economics of Standards Wars," Review of Network Economics, Concept Economics, vol. 3(1), pages 1-19, March. [Downloadable!]
  5. Jay Pil Choi & Eirik Gaard Kristiansen & Jae Nahm, 2005. "Strategic Product Pre-announcements in Markets with Network Effects," Working Papers 05-09, NET Institute, revised Sep 2005. [Downloadable!]
  6. Henri L.F.M. de Groot & Erik T. Verhoef & Peter Nijkamp, 1999. "Energy Saving by Firms: Decision-Making, Barriers and Policies," Tinbergen Institute Discussion Papers 99-031/3, Tinbergen Institute. [Downloadable!]
    Other versions:
  7. Mason, Robin & Weeds, Helen, 2001. "Irreversible Investment with Strategic Interactions," CEPR Discussion Papers 3013, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Cerquera Dussán, Daniel, 2006. "Dynamic R&D incentives with network externalities," ZEW Discussion Papers 06-94, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  9. Roberto Fontana, 2000. "Determinants of Innovation and Competition of Component System Technologies in the Local Area Network Industry," CESPRI Working Papers 117, CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, Italy, revised Sep 2000. [Downloadable!]
  10. Cerquera Dussán, Daniel, 2006. "R&D incentives, compatibility and network externalities," ZEW Discussion Papers 06-93, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  11. Hartigh, E. den & Langerak, F. & Commandeur, H.R., 2002. "The Effects of Self-Reinforcing Mechanisms on Firm Performance," Research Paper ERS-2002-46-MKT Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  12. Henri L.F. de Groot & Peter Mulder & Daan P. van Soest, 2004. "Subsidizing the Adoption of Energy-Saving Technologies: Analyzing the Impact of Uncertainty, Learning and Maturation," Tinbergen Institute Discussion Papers 03-019/3, Tinbergen Institute. [Downloadable!]
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