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Irreversible Choice of Uncertain Technologies with Network Externalities

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  • Jay Pil Choi

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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Bibliographic 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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Cited by:
  1. Ludovico Alcorta & Morgan Bazilian & Giuseppe De Simone & Ascha Pedersen, 2012. "Return on Investment from Industrial Energy Efficiency: Evidence from Developing Countries," Working Papers 2012.35, Fondazione Eni Enrico Mattei.
  2. Heli Koski & Tobias Kretschmer, 2004. "Survey on competing in network industries : firm strategies, market outcomes, and policy implications," LSE Research Online Documents on Economics 803, London School of Economics and Political Science, LSE Library.
  3. de Groot, Henri L. F. & Verhoef, Erik T. & Nijkamp, Peter, 2001. "Energy saving by firms: decision-making, barriers and policies," Energy Economics, Elsevier, vol. 23(6), pages 717-740, November.
  4. Madlener, Reinhard & Kumbaroglu, Gurkan & Ediger, Volkan S., 2005. "Modeling technology adoption as an irreversible investment under uncertainty: the case of the Turkish electricity supply industry," Energy Economics, Elsevier, vol. 27(1), pages 139-163, January.
  5. 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.
  6. Mason, R. & Weeds, H., 2000. "Networks, Options and Preemption," The Warwick Economics Research Paper Series (TWERPS) 575, University of Warwick, Department of Economics.
  7. Choi, Jay Pil, 1996. "Standardization and experimentation: Ex ante vs. ex post standardization," European Journal of Political Economy, Elsevier, vol. 12(2), pages 273-290, September.
  8. Jing, Bing, 2007. "Network externalities and market segmentation in a monopoly," Economics Letters, Elsevier, vol. 95(1), pages 7-13, April.
  9. Choi, Jay Pil & Thum, Marcel, 1998. "Market structure and the timing of technology adoption with network externalities," European Economic Review, Elsevier, vol. 42(2), pages 225-244, February.
  10. de Palma, Andre & Leruth, Luc & Regibeau, Pierre, 1999. "Partial compatibility with network externalities and double purchase," Information Economics and Policy, Elsevier, vol. 11(2), pages 209-227, July.
  11. Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.
  12. COLLA, Paolo & GARCIA, Filomena, 2004. "Technology adoption with forward looking agents," CORE Discussion Papers 2004041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Sangin Park, 2004. "Strategic Maneuvering and Standardization: Critical Advantage or Critical Mass?," Econometric Society 2004 Far Eastern Meetings 596, Econometric Society.
  14. 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.
  15. repec:dgr:uvatin:2099031 is not listed on IDEAS
  16. den Hartigh, E. & Langerak, F. & Commandeur, H.R., 2002. "The Effects of Self-Reinforcing Mechanisms on Firm Performance," ERIM Report Series Research in Management ERS-2002-46-MKT, 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.

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