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The Dynamics of Technological Adoption in Hardware/Software Systems


  • Neil Gandal

    (Eco, Tel Aviv and U. of Texas)

  • Michael Kende


  • Rafael Rob

    (Eco, U. of Penn.)


In this paper we examine the dyamic resolution of technological adoption in "hardware/software" systems. We are interested in determining to what extent software availability affects hardware sales and/or vice-versa. We first develop a dynamic model for estimating demand when costs (and license prices) are declining over time. We then estimate it empirically for the case of compact disc players. We find that there is "two-way" feedback between hardware and software for compact disc players. The result that the availability of compatible software (the CDs) plays a role in determining the adoption of compact disc players is likely due in part to the fact that compact disc players were not compatible with any existing audio standard.

Suggested Citation

  • Neil Gandal & Michael Kende & Rafael Rob, 1997. "The Dynamics of Technological Adoption in Hardware/Software Systems," CARE Working Papers 9706, The University of Texas at Austin, Center for Applied Research in Economics.
  • Handle: RePEc:tex:carewp:9706
    Note: None

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    Cited by:

    1. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
    2. James J. McAndrews, 1997. "Network issues and payment systems," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 15-25.


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