Download This PaperLearning and the Timing of New Technology Adoption
37 Pages Posted: 25 Feb 2020 Last revised: 11 Aug 2022
Date Written: August 10, 2022
Abstract
This paper analyzes the impact of endogenous learning on the adoption and diffusion of
an uncertain product innovation in a duopolistic industry. Firms are asymmetric, and the rate
of learning is determined by the volume of first-mover sales. Both firms may lead adoption
in equilibrium, and the first-mover is often unique. The resulting equilibrium dynamics are
consistent with and explain several empirical phenomena, including the comparative speed of
innovation diffusion across firms, the optimality of penetration pricing, and the prevalence of
increasing dominance in highly-innovative industries. Welfare and market structure implications are also considered.
Keywords: innovation adoption, innovation diffusion, endogenous learning, market experimentation, innovator’s dilemma, strategic investment timing
JEL Classification: C73, D25, O31
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