"The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players''
AbstractIn this paper we examine the diffusion of a hardware/software system. For such systems there is interdependence between the hardware adoption decisions of consumers and the supply decisions of software manufacturers. Hence there can be bottlenecks to the diffusion of the system which stem not from high prices but from the fact that the complementary product is not available. We consider the CD-industry and estimate the (direct) elasticity of adoption with respect to CD prices and (the cross) elasticity with respect to the variety of CD-titles. Our results show that the cross elasticity is indeed significant so that the presence of complementarities poses a serious bottleneck problem for the diffusion of the base product. We illustrate two applications of our methodology: (i) the business-policy question of how to subsidize a new base product which is contingent on a sufficiently large supply of complementary products & (ii) the public-policy question of what are the benefits of imposing backward compatibility on a new technology (e.g., high definition televisions).
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Bibliographic InfoPaper provided by University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences in its series CARESS Working Papres with number 97-10.
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Other versions of this item:
- Neil Gandal & Michael Kende & Rafael Rob, 2000. "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 43-61, Spring.
- Neil G & al & Michael Kende & Rafael Rob, . "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," Penn CARESS Working Papers f4df6bc9bda3795823895c786, Penn Economics Department.
- Gandal, N. & Kende, M. & Rob, R., 1997. "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," Papers 21-97, Tel Aviv.
- Gandal, Neil & Kirkwood MP, Archy & Rob, Rafael, 1999. "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," CEPR Discussion Papers 2078, C.E.P.R. Discussion Papers.
- L80 - Industrial Organization - - Industry Studies: Services - - - General
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
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