Adoption is Not Development: First Mover Advantages in the Diffusion of New Technology

46 Pages Posted: 16 Jan 2007

See all articles by Francisco Ruiz-Aliseda

Francisco Ruiz-Aliseda

Pontifical Catholic University of Chile

Peter B. Zemsky

INSEAD - Strategy; Centre for Economic Policy Research (CEPR)

Date Written: November 30, 2006

Abstract

The diffusion of new technology among competing firms is of long-standing interest in industrial organization. There is an extensive theoretical literature on technology adoption in which firms can instantaneously deploy a new technology in the market at a cost that is exogenously falling over time. While such models explain diffusion (firms adopt asynchronously), Fudenberg and Tirole (1985) show that the incentives to preemptively adopt in sub-game perfect equilibria can cause rents to be equalized across firms. In contrast, we study technology development where costly and time consuming effort is required to deploy a new technology. With diminishing returns to instantaneous effort, delaying deployment reduces the firm's cost, as in adoption models. However, the incentive to preempt is lower: with its development already partially complete, a preempted firm delays deployment less than with adoption. We provide reasonable conditions under which the sub-game perfect equilibrium outcome corresponds that in the pre-commitment equilibrium first proposed by Reinganum (1981a, 1981b), yielding both diffusion and first mover advantages for the case of technology development.

Keywords: preemption, rent equalization, sustainable competitive advantage, pre-commitment equilibria, lead times

JEL Classification: D43, D92, L13, M21

Suggested Citation

Ruiz-Aliseda, Francisco and Zemsky, Peter B., Adoption is Not Development: First Mover Advantages in the Diffusion of New Technology (November 30, 2006). INSEAD Business School Research Paper No. 2007/03/ST. Available at SSRN: https://ssrn.com/abstract=957236 or http://dx.doi.org/10.2139/ssrn.957236

Francisco Ruiz-Aliseda (Contact Author)

Pontifical Catholic University of Chile ( email )

Vicuna Mackenna 4860
Santiago, 99999
Chile

Peter B. Zemsky

INSEAD - Strategy ( email )

Boulevard de Constance
77305 Fontainebleau
France
+33 1 60 72 4162 (Phone)
+31 1 60 74 5500 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
199
Abstract Views
904
rank
155,957
PlumX Metrics