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Heterogeneity and the Dynamics of Technology Adoption

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Author Info
Stephen Ryan (MIT and NBER)
Catherine Tucker (MIT Sloan School of Business)

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Abstract

This paper analyzes the role of heterogeneity and forward-looking expectations in the diffusion of network technologies. Using a detailed dataset on the adoption of a new videoconferencing technology within a firm, we estimate a structural model of technology adoption and communications choice. We allow for heterogeneity in network benefits and adoption costs across agents. We find that ignoring heterogeneity in the interplay between adoption costs and network effects will underpredict the size of the steady-state network size by almost 50 percent. We develop a new “simulated sequence estimator” to measure the extent to which agents seek diversity in their calling behavior, and characterize the patterns of communication as a function of geography, job function, and rank within the firm. We find that agents have significant welfare gains from having access to a diverse network, and that a policy of strategically targeting the right subtype for initial adoption can lead to a faster-growing and larger network than a policy of uncoordinated or diffuse adoption.

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Paper provided by NET Institute in its series Working Papers with number 06-26.

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Length: 61 pages
Date of creation: Oct 2006
Date of revision: Oct 2006
Handle: RePEc:net:wpaper:0626

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  1. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Blackwell Publishing, vol. 71(2), pages 483-512, 04. [Downloadable!] (restricted)
  2. Stephen Ryan, 2006. "The Costs of Environmental Regulation in a Concentrated Industry," 2006 Meeting Papers 9, Society for Economic Dynamics.
  3. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
  4. Liran Einav (Stanford University), 2004. "Not All Rivals Look Alike: An Empirical Model for Discrete Games with Asymmetric Rivals," Econometric Society 2004 North American Winter Meetings 626, Econometric Society. [Downloadable!]
  5. Liebowitz, S J & Margolis, Stephen E, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-50, Spring. [Downloadable!] (restricted)
  6. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
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  7. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, 09. [Downloadable!] (restricted)
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  8. Igal Hendel & Aviv Nevo, 2005. "Measuring the Implications of Sales and Consumer Inventory Behavior," NBER Working Papers 11307, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
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  10. Daniel Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 738-761, Autumn.
  11. Daniel A. Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," NBER Working Papers 12488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October. [Downloadable!] (restricted)
  13. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew Sweeting, 2007. "Dynamic Product Repositioning in Differentiated Product Markets: The Case of Format Switching in the Commercial Radio Industry," NBER Working Papers 13522, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  3. Michaela Draganska & Sanjog Misra & Victor Aguirregabiria & Pat Bajari & Liran Einav & Paul Ellickson & Dan Horsky & Sridhar Narayanan & Yesim Orhun & Peter Reiss & Katja Seim & Vishal Singh & Raphael, 2008. "Discrete choice models of firms’ strategic decisions," Marketing Letters, Springer, vol. 19(3), pages 399-416, December. [Downloadable!] (restricted)
  4. Song Yao & Carl F. Mela, 2008. "A Dynamic Model of Sponsored Search Advertising," Working Papers 08-16, NET Institute, revised Sep 2008. [Downloadable!]
  5. Catherine Tucker, 2008. "Social Interactions, Network Fluidity and Network Effects," Working Papers 08-30, NET Institute, revised Oct 2008. [Downloadable!]
  6. Wesley Hartmann & Puneet Manchanda & Harikesh Nair & Matthew Bothner & Peter Dodds & David Godes & Kartik Hosanagar & Catherine Tucker, 2008. "Modeling social interactions: Identification, empirical methods and policy implications," Marketing Letters, Springer, vol. 19(3), pages 287-304, December. [Downloadable!] (restricted)
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