Working Paper: CEPR ID: DP4925
Authors: Fabiano Schivardi; Martin Schneider
Abstract: This paper studies the diffusion of a new technology that is brought to market while its potential is still uncertain. We consider a dynamic game in which firms improve both a new and a rival old technology while learning about the relative potential of both technologies. We use the model to understand historical evidence on diffusion and market structure. In particular, the model explains why a change in market leadership often goes along with slow diffusion. It also provides a rational explanation for observed ?incumbent inertia? and shows how markets can make mistakes in the selection of new technologies.
Keywords: Dynamic Games; Innovation; Learning; Oligopoly
JEL Codes: C63; C73; D83; L13; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Declining market share (D49) | Increased likelihood of adopting new technology (O33) |
| Slow initial performance growth (O49) | Delays in adoption of new technology (O33) |
| Fast early performance growth (O57) | Quicker diffusion of new technology (O33) |
| Market structure (D49) | Likelihood of technology selection mistakes (C52) |
| Joint evolution of beliefs and performance (C73) | Success or failure of new design (C52) |