The Timing of Technology Adoption in Network Industries

This paper analyzes the effect of network externalities on firms’ timing of new technology adoption in a network industry. In a pre-commitment game under Cournot competition, network effects tend to accelerate the timing of the leader and the follower regarding their adoption dates: under the rational expectations hypothesis and also under the firms’ output commitment. However, while an increase in network effects tends to reduce the discrepancy between the optimal social timing of the new technology adoption and the market-driven time of adoption in the rational expectations model, the opposite occurs under the output commitment game.