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Nature of competition and new technology adoption

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  • Krishnendu Ghosh Dastidar

Abstract

This paper analyses the incentives to adopt cost-reducing technology by firms in a horizontally differentiated industry. In our model there are several suppliers of a new technology. The extent of the cost reduction depends on the quality of the new technology. A firm has to buy the technology in a 'scoring auction'. This means that both the price and the quality (which affects marginal cost of production) of this new technology are no longer given but depend on the equilibrium outcome in the 'scoring auction'. We show that the nature of competition (Cournot or Bertrand) has no effect on the equilibrium decision of the firms to adopt the new technology when the quality of the new technology offered by the suppliers lies in the interior of the feasible range of qualities. In this case, both firms adopt new technology. However, when there is a corner solution, then it is possible to have equilibria where only one firm (or no firm) adopts the new technology. With corner solution the nature of competition (Cournot or Bertrand) makes a difference to the equilibrium outcomes.

Suggested Citation

  • Krishnendu Ghosh Dastidar, 2014. "Nature of competition and new technology adoption," ISER Discussion Paper 0895, Institute of Social and Economic Research, Osaka University, revised Mar 2014.
    • Handle: RePEc:dpr:wpaper:0895
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    References listed on IDEAS

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    Cited by:

    1. Krishnendu Ghosh Dastidar & Makoto Yano, 2021. "Corruption, market quality, and entry deterrence in emerging economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(1), pages 101-117, March.
    2. Megan Emfosi Meena & Jiaying Geng, 2022. "Dynamic Competition in Telecommunications: A Systematic Literature Review," SAGE Open, , vol. 12(2), pages 21582440221, April.
    3. Leonard F. S. Wang & Domenico Buccella, 2023. "The Timing of Technology Adoption in Network Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(4), pages 367-392, June.
    4. Krishnendu Ghosh DASTIDAR & YANO Makoto, 2020. "FCPA and Market Quality in Emerging Economies," Discussion papers 20087, Research Institute of Economy, Trade and Industry (RIETI).
    5. Partha Pratim Dube, 2018. "Bertrand Game Under Cost Function," Australian Economic Papers, Wiley Blackwell, vol. 57(4), pages 489-496, December.
    6. João Ricardo Faria & Peter F. Wanke & João J. Ferreira & Franklin G. Mixon, 2018. "Research and innovation in higher education: empirical evidence from research and patenting in Brazil," Scientometrics, Springer;Akadémiai Kiadó, vol. 116(1), pages 487-504, July.

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