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Uncertainty and Competition in the Adoption of Complementary Technologies
Hull University Business School
Cottingham Road, Hull HU6 7RX, UK
**Manchester Business School
代写英国留学论文Booth Street West, Manchester M15 6PB, UK
September 2009
1 Corresponding Author: a.azevedo@hull.ac.uk; +44(0)1482463107.
2 Acknowledgments: Alcino Azevedo gratefully acknowledges Fundação Para a Ciência e a Tecnologia.
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Uncertainty and Competition in the Adoption of
Complementary Technologies
Abstract
In this paper we study, for a duopoly market, the combined effect of uncertainty, competition and “technological complementarity” on firms’ investment behaviour for a game-choice setting where it is assumed that there is a first-mover advantage. Firms do often use inputs whose qualities are complements such as computer and modem, equipment and structure, train and track, and transmitter and receiver and, therefore, on such cases, investment decisions on upgrades or replacements must consider the degree of complementarity between investments.
We derive analytical or quasi-analytical solutions for the leader and the follower value functions and their respective investment thresholds. At the beginning of the investment game firms have two technologies available, whose functions are complement, and the option to adopt both technologies at the same time or at different times, in a context where the evolution of the gains that can be made through the adoption of the technology(ies) and the price of the technologies are uncertain.
Our results contradict the conventional wisdom which says that “when a production process requires two extremely complementary inputs, a firm should upgrade (or replace) them simultaneously”. We found that when uncertainty about revenues and the price of the two technologies is considered it might be optimal for the leader and the follower to adopt the two technologies asynchronously, first, the technology whose price is decreasing at a lower rate and then the technology whose price is decreasing more rapidly. Some of the illustrated results show nonlinear and complex investment criteria and sensitivities to the expected rate of change in the price of the technologies and the degree of complementarity between the two technologies.
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1. Introduction
Since the pioneering work of Smets (1993) the effect of uncertainty and competition on firms’ investment behaviour has been extensively studied in the real options literature3, but the influence of the degree of complementarity between the inputs of an investment on firms’ investment decisions has been neglected. However, firms do often use inputs whose qualities are complements, such as computer and modem, equipment and structure, train and track, and transmitter and receiver. In such cases, investment decisions on upgrades or replacements must consider the degree of complementarity between investments.
Conventional wisdom says that when a production process requires two extremely complementary inputs, a firm should upgrade (or replace) them simultaneously, i.e., when raising the quality of one input it should upgrade its complements at the same time4. However, this conclusion has been made for economic contexts where it is assumed that uncertainty, competition and adjustment costs are absent. In this paper we study the effect of the complementarity between two technologies on their optimal time of adoption, considering competition be本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。