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Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure

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  • A. Bassanini
  • G. Dosi

Abstract

This paper is motivated by two 'stylized facts' concerning the dynamics of diffusion of different technologies competing for the same market niche. a) A stable pattern of market sharing with no overwhelming dominant position is rarely observed in markets with network esternalities. Unbounded increasing returns to adoption are often called for an explanation of this fact. However the argument is generally based on an incorrect interpretation of the Brian Arthur (1990) model. As we show with a simple counterexample unbounded increasing returns are either necessary nor sufficient to lead to technological monopolies even in a stable external environment. b) International diffusion may lead sometimes to different standards in different countries ( the archetypal case is the diffusion of typewriter-computer keyboards - AZERTY vs. QWERTY) or to the diffusion of the same standard in every country (the archetypical example being VCRs - Beta vs. VHS), even without intervention of any regulatory agency. Intuitively when convergence to the same standard is not an accident of history, it is an outcome of the relative weight of international spillovers as compared to nationwide esternalities. The crucial question is: can a model that account for the former fact accommodate also the latter? In this paper, by establishing some mathematical properties of generalized urn schemes, we build on a class of competing technology dynamics models to develop an explanation for the former "fact" and to provide sufficient conditions for convergence to the same or to different technological monopolies in different countries. Our explanation for the empirical tendency to converge to technological monopoly relies on convergence rate differentials to limit market shares: We show that a market can approach a monopoly with a higher speed than it approaches any feasible limit market share where both technologies coexist. Convergence to market sharing, we conclude, is in general so slow that the environment changes before the market share trajectory becomes stable in a neighborhood of its limit. The empirical implication is that among markets with high rate of technological change and increasing returns to to adoption, a prevalence of stable monopolies over stable market sharing should be expected.

Suggested Citation

  • A. Bassanini & G. Dosi, 1998. "Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure," Working Papers ir98012, International Institute for Applied Systems Analysis.
  • Handle: RePEc:wop:iasawp:ir98012
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    References listed on IDEAS

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    Cited by:

    1. Opolot, Daniel & Azomahou, Theophile, 2012. "Learning and convergence in networks," MERIT Working Papers 074, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Paul Windrum, 2003. "Unlocking a Lock-in: Towards a Model of Technological Succession," Chapters,in: Applied Evolutionary Economics, chapter 11 Edward Elgar Publishing.
    3. Robalino, David & Lempert, Robert, 2000. "Carrots and sticks for new technology: Abating greenhouse gas emissions in a heterogeneous and uncertain world," MPRA Paper 12002, University Library of Munich, Germany.
    4. John Whalley & Weimin Zhou & Xiaopeng An, 2009. "Chinese Experience with Global G3 Standard-Setting," CESifo Working Paper Series 2537, CESifo Group Munich.
    5. Sydney Winter & Giovanni Dosi, 2000. "Interpreting Economic Change: Evolution, Structures and Games," LEM Papers Series 2000/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. Andreas Pyka & Paul Windrum, 2003. "The self-organisation of strategic alliances," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(3), pages 245-268.
    7. Windrum, Paul, 2000. "Back from the brink: Microsoft and the strategic use of standards in the Browser Wars," Research Memorandum 005, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    8. Kretschmer, Tobias, 2004. "Upgrading and niche usage of PC operating systems," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1155-1182, November.
    9. Heli Koski & Tobias Kretschmer, 2004. "Survey on Competing in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications," Journal of Industry, Competition and Trade, Springer, vol. 4(1), pages 5-31, March.
    10. Bulat Sanditov, 2005. "Patent Citations, the Value of Innovations and Path-Dependency," KITeS Working Papers 177, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2005.
    11. Cowan, Robin & Cowan, William, 1998. "Technological Standardization with and without Borders in an Interacting Agents Model," Research Memorandum 015, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    12. Leibbrandt, Gottfried, 2004. "Harmonizing Europe’s payment systems: an uphill battle?," Research Memorandum 020, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    13. A. Bassanini, 1997. "Localized Technological Change and Path-Dependent Growth," Working Papers ir97086, International Institute for Applied Systems Analysis.

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