A monopolist supplier and learning effects in technology adoption

Elisabetta Ottoz

Department of Economics and Statistics Cognetti de Martiis. Working Papers from University of Turin

Abstract: The aim of this paper is to study the consequences of the introdution of supply side and learning efects in the process of technological adoption. Explicit consideration of supply side makes endogenous the price path, whereas the occurring of learning enables a better understanding of the coordination process. The model describes an open-loop two stage dynamic game of imperfect information:the players are a monopolist offering a cost reducing process innovation and two identical firms who, observing the innovation prices, are to simultaneously decide when to adopt it, in presence of learning by using and spillover. Open-loop equilibrium in symmetric adoption is the solution for incremental innovations, whereas for drastic innovations the resulting equilibrium might be one of diffusion or simultaneous adoption, both early and late, according to Y, the probability that adopters will choose to adopt early. Independently of the particular equilibrium wich will take place, drastic innovations's first period prices are always higher than incremental ones.

Pages: 27 pages
Date: 2002-05
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