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Disruption costs and the choice of technology

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    Abstract

    We study technology adoption in a dynamic model of price competition. Adoption involves disruption costs and learning by doing. Because of disruption costs, the adopting firm begins in a market disadvantage, which may persist if its rival captures the buyers it needs to learn the technology. The prospect of future rents by rival results in (i) failure to adopt Pareto superior technologies; (ii) an equilibrium preference for the choice of technologies with smaller (discounted) social value but flows payoffs that are received earlier firm is exposed to more competition.

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    Bibliographic Info

    Paper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv292.

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    Length: 31 pages
    Date of creation: Oct 2013
    Date of revision:
    Handle: RePEc:ila:ilades:inv292

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    Related research

    Keywords: Technology adoption; adoption breakdowns; triangular arrays; dynamics competition; endogenous impatience;

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    1. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April.
    2. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
    3. Luis M.B. Cabral & Michael Riordan, 1992. "The Learning Curve, Market Dominance and Predatory Pricing," Papers 0039, Boston University - Industry Studies Programme.
    4. Parente Stephen L., 1994. "Technology Adoption, Learning-by-Doing, and Economic Growth," Journal of Economic Theory, Elsevier, vol. 63(2), pages 346-369, August.
    5. Boyan Jovanovic & Yaw Nyarko, 1994. "Learning By Doing and the Choice of Technology," NBER Working Papers 4739, National Bureau of Economic Research, Inc.
    6. Dirk Bergemann & Juuso Valimaki, 2003. "Dynamic Price Competition," Cowles Foundation Discussion Papers 1412, Cowles Foundation for Research in Economics, Yale University.
    7. David Besanko & Ulrich Doraszelski & Yaroslav Kryukov & Mark Satterthwaite, 2010. "Learning-by-Doing, Organizational Forgetting, and Industry Dynamics," Econometrica, Econometric Society, vol. 78(2), pages 453-508, 03.
    8. Leonard-Barton, Dorothy, 1988. "Implementation as mutual adaptation of technology and organization," Research Policy, Elsevier, vol. 17(5), pages 251-267, October.
    9. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    10. Thomas J. Holmes & David K. Levine & James A. Schmitz, 2012. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 1-33, August.
    11. Peter Klenow, 1998. "Learning Curves and the Cyclical Behavior of Manufacturing Industries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 531-550, April.
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