Strategic Decisions of New Technology Adoption Under Asymmetric Information: A Game Theoretic Model

Abstract

In this paper we explore strategic decision making in new technology adoption by utilizing economic analysis. We show how asymmetric information affects firms' decisions to adopt the technology. We do so in a two-stage game-theoretic model where the first-stage investment results in the acquisition of a new technology that, in the second stage, may give the firm a competitive advantage in the product market. We compare two information structures under which two competing firms have asymmetric information about the future performance (i.e., post-adoption costs) of the new technology. We find that equilibrium strategies under asymmetric information are quite different from those under symmetric information. Information asymmetry leads to different incentives and strategic behaviors in the technology adoption game. In contrast to conventional wisdom, our model shows that market uncertainty may actually induce firms to act more aggressively under certain conditions. We also show that having better information is not always a good thing. These results illustrate a key departure from established decision theory.

Keywords: Technology adoption, strategic decisions, asymmetric information, technology-based competition, information economics