The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players

Neil Gandal, Archy Kirkwood MP and Rafael Rob
Authors registered in the RePEc Author Service: Rafael Robb

No 2078, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we examine the diffusion of a hardware/software system. For such systems there is interdependence between the hardware adoption decisions of consumers and the supply decisions of software manufacturers. Hence there can be bottlenecks to the diffusion of the system which stem not from high prices but from the fact that the complementary product is not available. We consider the CD-industry and estimate the (direct) elasticity of adoption with respect to CD prices and (the cross) elasticity with respect to the variety of CD-titles. Our results show that the cross elasticity is indeed significant so that the presence of complementarities poses a serious bottleneck problem for the diffusion of the base product. We illustrate two applications of our methodology: (i) the business-policy question of how to subsidize a new base product which is contingent on a sufficiently large supply of complementary products & (ii) the public-policy question of what are the benefits of imposing backward compatibility on a new technology (e.g., high definition televisions).

Keywords: compact discs; complementary products; empirical study; technological adoption (search for similar items in EconPapers)
JEL-codes: K2 L80 (search for similar items in EconPapers)
Date: 1999-02
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Related works:
Journal Article: The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players (2000)
Working Paper: The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players (1997)
Working Paper: The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players
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