Market Structure and the Diffusion of New Technology

Abstract

This article shows that if the value of adopting a cost-reducing, capital-embodied process innovation declines with the number of firms which have already adopted it, then the firms adopt the new technology in sequence so that it is "diffused" into the industry over time. This diffusion is due purely to strategic behavior; firms are assumed to be identical and information regarding the value of the innovation is perfect. Furthermore, this phenomenon persists even in the limiting case of infinitely many firms.

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