Yuan Ze University
Competition of New Technology Adoption under Demand Uncertainty
Email address: guo@saturn.yzu.edu.tw
Keywords: Adoption of new production technology; Investment irreversibility; Demand uncertainty; Real options; Duopolistic competition;
JEL Classifications: D81, G31, L13, O33
Abstract:
This paper studies the processes of technology adoption under demand uncertainty and competitive enrironment. Two high-tech companies compete in the product mar- ket and the adoption of new production technology of cost reduction. Closed-form solutions of product prices, processes of technology adoption, and companies' values in equilibrium are presented. Our results suggest that persistence of leadership oc- curs when the initial di erence between the leader and the follower is relativety low. There exist two asymmetric equilibria when we consider the case of identical duopolis- tic rms, which is in contrast to the deterministic case in Fudenberg and Tirole (1985, RES). Furthermore, competition enhances the process of technology adoption when the xed cost is relatively low and the improvement of new technology is relatively large. Patterns of product prices and technology adoption are also studied.
PDF file of paper: guo_abstract.pdf
Session: Industrial Organization Theory II
Time: Saturday, 7 July, 2:15pm - 3:45pm
Room: D