Market Experimentation and New Technology Adoption

50 Pages Posted: 25 Feb 2020 Last revised: 8 May 2020

Date Written: January 26, 2020

Abstract

This article studies the adoption and diffusion of a product innovation in a duopoly market. Firms are asymmetric, and learning is endogenously determined by consumer purchases. In equilibrium, both high- and low-quality firms may lead adoption, and first-movers are often uniquely determined by initial beliefs. Equilibrium adoption patterns are consistent with and explain several empirical phenomena. To maximize welfare, a social planner prefers sequential adoption over a wider range of beliefs than occurs in equilibrium. A change in market structure, specifically a merger to monopoly, unambiguously improves the timing of initial adoption; but innovation diffusion may become less efficient.

Keywords: innovation adoption, innovation diffusion, market experimentation, product innovation, strategic investment timing

JEL Classification: C73, D25, O31

Suggested Citation

Jaske, Alan, Market Experimentation and New Technology Adoption (January 26, 2020). Economic Research Initiatives at Duke (ERID) Working Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3527110 or http://dx.doi.org/10.2139/ssrn.3527110

Alan Jaske (Contact Author)

Duke University ( email )

Durham, NC
United States

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