THE DECLINING PRICE PARADOX OF NEW TECHNOLOGIES

Abstract

The declining prices of new technology products often results in a tendency for many decision makers to wait for lower prices, and to postpone a capital investment. This paper makes a distinction between the prices of technology elements and the prices of components and systems. There are many cases where the price reduction over time applies only to some elements of the system, while the total price of the improved system remains almost the same. For those cases, a DECLINING PRICE PARADOX is spelled out. The Paradox suggests that the more the price of the investment is subject to future reduction, the more urgent it is to invest in this technology. The paper incorporates learning considerations in the investment decision making, and states the conditions where the paradox applies.