Technology Adoption with Multiple Alternative Designs and the Option to Wait

Abstract

Frequently, new technologies arise under two or more alternative designs. Moreover, the state of each design evolves over time as a result of various cumulative improvements. In this paper, we study the strategic interaction between \incumbent" firms (those who already own a design) and \entrants" (those who do not but would like to adopt the new technology). We focus on two important decisions by an entrant: when to choose a design and which design to choose. We show that, in equilibrium, an entrant chooses the leading design and does not wait. While the former decision is efficient, the latter is generally not: the incumbent firms' inability to commit to future prices leads to inefficiently early technology adoption.