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Technology Adoption Under Imperfect Information

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  • Jennifer F. Reinganum

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.

Suggested Citation

  • Jennifer F. Reinganum, 1983. "Technology Adoption Under Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 57-69, Spring.
  • Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:57-69
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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. Amihai Glazer, 2008. "Bargaining with Rent Seekers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(5), pages 859-871, October.
    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. Galang, Roberto Martin N., 2014. "Divergent diffusion: Understanding the interaction between institutions, firms, networks and knowledge in the international adoption of technology," Journal of World Business, Elsevier, vol. 49(4), pages 512-521.
    5. Maria Alipranti & Chrysovalantou Miliou & Emmanuel Petrakis, 2014. "On Vertical Relations and Technology Adoption Timing," Working Papers 1502, University of Crete, Department of Economics.
    6. Kim, Bongsun & Kim, Eonsoo & Miller, Douglas J. & Mahoney, Joseph T., 2016. "The impact of the timing of patents on innovation performance," Research Policy, Elsevier, vol. 45(4), pages 914-928.
    7. 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.
    8. Petrakis, Emmanuel, 1994. "Technology diffusion in a differentiated industry," UC3M Working papers. Economics 2921, Universidad Carlos III de Madrid. Departamento de Economía.
    9. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2015. "On vertical relations and the timing of technology adoption," Journal of Economic Behavior & Organization, Elsevier, vol. 120(C), pages 117-129.
    10. Das Nilotpal & Falaris Evangelos M & Mulligan James G, 2009. "Vintage Effects and the Diffusion of Time-Saving Technological Innovations," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-37, June.
    11. 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.
    12. Petrakis, Emmanuel, 1998. "Diffusion of abatement technologies in a differentiated industry," DEE - Working Papers. Business Economics. WB 6542, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    13. Aramonte, Sirio, 2015. "Innovation, investor sentiment, and firm-level experimentation," Finance and Economics Discussion Series 2015-67, Board of Governors of the Federal Reserve System (U.S.).
    14. Afuah, Allan, 2004. "Does a focal firm's technology entry timing depend on the impact of the technology on co-opetitors?," Research Policy, Elsevier, vol. 33(8), pages 1231-1246, October.
    15. 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).
    16. James G. Mulligan & Nilotpal Das, 2005. "Persistent Adoption of Time-Saving Process Innovations," Working Papers 05-03, University of Delaware, Department of Economics.
    17. 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.
    18. 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.

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