Irreversible choice of uncertain technologies with network externalities

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60 Citations (Scopus)

Abstract

In this article, I explore the problem of sequential and irreversible technology choice in the presence of network externalities when the technologies stochastically evolve over time. Early potential users are shown to adopt an irreversible technology too early compared to the social optimum. The effect of increasing the uncertainty of the technologies on an early potential user's decision is analyzed. I find that the sponsor of new emerging technology might choose a research strategy that is too safe. I also study the consequences of allowing side payments between generations of consumers and demonstrate that an ex post optimal standardization policy can impair ex ante social welfare.

Original languageEnglish
Pages (from-to)382-401
Number of pages20
JournalRAND Journal of Economics
Volume25
Issue number3
DOIs
Publication statusPublished - 1994

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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