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Technology Adoption Under Imperfect Information

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  • Reinganum, Jennifer F.

Abstract

This article presents a static game theoretic model of a firm's decision to adopt a technological innovation of uncertain profitability. Given the levels of adoption costs, discount rates, and expectations regarding the profitability of the innovation, we determine the (Nash equilibrium) range of initial production costs for which each firm prefers to adopt the innovation. We show that if initial costs are sufficiently dissimilar, then it is the high-cost firm which adopts the new technology, while the low-cost firm eschews adoption. An increase in a firm's adoption cost (or equivalently, a decrease in the firm's discount rate) makes that firm no more likely to adopt the new technology, while the rival firm may be more or less likely to adopt, depending upon the initial values of the parameters.

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Bibliographic Info

Paper provided by California Institute of Technology, Division of the Humanities and Social Sciences in its series Working Papers with number 407.

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Date of creation: Nov 1981
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Publication status: Published:
Handle: RePEc:clt:sswopa:407

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Postal: Working Paper Assistant, Division of the Humanities and Social Sciences, 228-77, Caltech, Pasadena CA 91125
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Cited by:
  1. Loginova, Oksana & Wang, X. Henry, 2013. "Mass customization in an endogenous-timing game with vertical differentiation," Economic Modelling, Elsevier, vol. 33(C), pages 164-173.
  2. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2011. "Timing of technology adoption and product market competition," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 513-523, September.
  3. Miller, David A., 2008. "Invention under uncertainty and the threat of ex post entry," European Economic Review, Elsevier, vol. 52(3), pages 387-412, April.
  4. Bocquet, Rachel & Brossard, Olivier & Sabatier, Mareva, 2007. "Complementarities in organizational design and the diffusion of information technologies: An empirical analysis," Research Policy, Elsevier, vol. 36(3), pages 367-386, April.
  5. James G. Mulligan & Nilotpal Das, 2005. "Persistent Adoption of Time-Saving Process Innovations," Working Papers 05-03, University of Delaware, Department of Economics.
  6. James G. Mulligan & Nilotpal Das, 2004. "Vintage Effects and the Diffusion of Time-Saving Technological Innovations: The Adoption of Optical Scanners by U.S. Supermarkets."," Working Papers 04-06, University of Delaware, Department of Economics.
  7. Pagura, Maria E., 2002. "The Hazard Of Client Exit In Microfinance," 2002 Annual meeting, July 28-31, Long Beach, CA 19698, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. James G. Mulligan & Nilotpal Das, 2006. "Item Pricing Laws, Supplier Behavior, and the Diffusion of Time-Saving Technology Innovations," Working Papers 06-11, University of Delaware, Department of Economics.

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