IDEAS home Printed from https://ideas.repec.org/p/ila/ilades/inv292.html
   My bibliography  Save this paper

Disruption costs and the choice of technology

Author

Abstract

We study technology adoption in a dynamic model of price competition. Adoption involves disruption costs and learning by doing. Because of disruption costs, the adopting firm begins in a market disadvantage, which may persist if its rival captures the buyers it needs to learn the technology. The prospect of future rents by rival results in (i) failure to adopt Pareto superior technologies; (ii) an equilibrium preference for the choice of technologies with smaller (discounted) social value but flows payoffs that are received earlier firm is exposed to more competition.

Suggested Citation

  • Carlos J.Pérez & Carlos J.Ponce, 2013. "Disruption costs and the choice of technology," ILADES-UAH Working Papers inv292, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv292
    as

    Download full text from publisher

    File URL: http://fen.uahurtado.cl/wp-content/uploads/2010/07/I-292.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Parente Stephen L., 1994. "Technology Adoption, Learning-by-Doing, and Economic Growth," Journal of Economic Theory, Elsevier, vol. 63(2), pages 346-369, August.
    2. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
    3. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April.
    4. Thompson, Peter, 2010. "Learning by Doing," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 429-476, Elsevier.
    5. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
    6. Thomas J. Holmes & David K. Levine & James A. Schmitz, 2012. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 1-33, August.
    7. Cabral, Luis M B & Riordan, Michael H, 1994. "The Learning Curve, Market Dominance, and Predatory Pricing," Econometrica, Econometric Society, vol. 62(5), pages 1115-1140, September.
    8. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    9. Bergemann, Dirk & Valimaki, Juuso, 2006. "Dynamic price competition," Journal of Economic Theory, Elsevier, vol. 127(1), pages 232-263, March.
    10. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    11. David Besanko & Ulrich Doraszelski & Yaroslav Kryukov & Mark Satterthwaite, 2010. "Learning-by-Doing, Organizational Forgetting, and Industry Dynamics," Econometrica, Econometric Society, vol. 78(2), pages 453-508, March.
    12. Leonard-Barton, Dorothy, 1988. "Implementation as mutual adaptation of technology and organization," Research Policy, Elsevier, vol. 17(5), pages 251-267, October.
    13. Joseph M. Ostroy & Louis Makowski, 2001. "Perfect Competition and the Creativity of the Market," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 479-535, June.
    14. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-1165, December.
    15. Peter Klenow, 1998. "Learning Curves and the Cyclical Behavior of Manufacturing Industries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 531-550, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pérez, Carlos J. & Ponce, Carlos J., 2015. "Disruption costs, learning by doing, and technology adoption," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 64-75.
    2. Thomas J. Holmes & David K. Levine & James A. Schmitz, 2012. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 1-33, August.
    3. Thompson, Peter, 2010. "Learning by Doing," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 429-476, Elsevier.
    4. Kredler, Matthias, 2014. "Vintage human capital and learning curves," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 154-178.
    5. Fabiano Schivardi & Martin Schneider, 2008. "Strategic Experimentation and Disruptive Technological Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 386-412, April.
    6. Luís Cabral, 2018. "We’re Number 1: Price Wars for Market Share Leadership," Management Science, INFORMS, vol. 64(5), pages 2013-2030, May.
    7. Moreno-Galbis, Eva, 2012. "The impact of TFP growth on the unemployment rate: Does on-the-job training matter?," European Economic Review, Elsevier, vol. 56(8), pages 1692-1713.
    8. Mateos-Planas, Xavier, 2000. "Schooling and distortions in a vintage capital model," Discussion Paper Series In Economics And Econometrics 30, Economics Division, School of Social Sciences, University of Southampton.
    9. Zohal Hessami, 2016. "How Do Voters React to Complex Choices in a Direct Democracy? Evidence from Switzerland," Kyklos, Wiley Blackwell, vol. 69(2), pages 263-293, May.
    10. Karp, Larry & Lee, In Ho, 2000. "Learning-by-Doing and the Choice of Technology: the Role of Patience," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4vh9x271, Department of Agricultural & Resource Economics, UC Berkeley.
    11. Boyan Jovanovic, 1998. "Vintage Capital and Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 497-530, April.
    12. Stephen Redding, 2002. "Path Dependence, Endogenous Innovation, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1215-1248, November.
    13. Martine Carre & David Drouot, 2004. "Pace versus Type: The Effect of Economic Growth on Unemployment and Wage Patterns," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 737-757, July.
    14. Mateos-Planas, Xavier, 2000. "Schooling and distortions in a vintage capital model," Discussion Paper Series In Economics And Econometrics 0030, Economics Division, School of Social Sciences, University of Southampton.
    15. Ana Espínola-Arredondo & Félix Muñoz-García, 2013. "Uncovering Entry Deterrence in the Presence of Learning-by-Doing," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 319-338, September.
    16. Thomas J. Holmes, 2004. "Step-by-step Migrations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 52-68, January.
    17. Thomas J. Holmes, 1996. "Step-by-step migration to efficient agglomerations," Staff Report 221, Federal Reserve Bank of Minneapolis.
    18. repec:cvs:starer:9816 is not listed on IDEAS
    19. repec:fth:starer:9816 is not listed on IDEAS
    20. Garicano, Luis & Rossi-Hansberg, Esteban, 2012. "Organizing growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 623-656.
    21. Kapelko, Magdalena & Oude Lansink, Alfons & Stefanou, Spiro E., 2015. "Analyzing the impact of investment spikes on dynamic productivity growth," Omega, Elsevier, vol. 54(C), pages 116-124.
    22. Karsten Wasiluk, 2015. "Path dependence and induced innovation," Working Paper Series of the Department of Economics, University of Konstanz 2015-22, Department of Economics, University of Konstanz.

    More about this item

    Keywords

    Technology adoption; adoption breakdowns; triangular arrays; dynamics competition; endogenous impatience;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ila:ilades:inv292. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mauricio Tejada (email available below). General contact details of provider: https://edirc.repec.org/data/deilacl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.