Market Structure and the Timing of Technology Adoption with Network Externalities

The paper shows that in the presence of network externalities, consumers adopt conventional technologies too early; the waiting option for a newly emerging technology is not exercised enough. This problem is aggravated when the new technology is provided by a single producer with market power because any positive value created via waiting by current consumers will be ex post appropriated by the monopolist. Therefore, the monopolist´s power to extract surplus operates against his own interests in this dynamic setting. The paper also shows how the producer of a new technology can partially overcome the problem of too little waiting by using licensing as a commitment device.