a punctuated-equilibrium strongmodelstrong of technology diffusion.pdf

A Punctuated-Equilibrium Model of Technology Diffusion Christoph H. Loch Bernardo A. Huberman INSEAD Xerox PARC Fontainebleau, France Palo Alto, CA 94304 Revised, December 1997 Abstract We present an evolutionary model of technology diffusion in which an old and a new technology are available, both of which improve their performance incrementally over time. Technology adopters make repeated choices between the established and the new technology based on their perceived performance, which is subject to uncertainty. Both technologies exhibit positive externalities, or performance benefits from others using the same technology. We find that the superior technology will not necessarily be broadly adopted by the population. Externalities cause two stable usage equilibria to exist, one with the old technology being the standard and the other with the new technology the standard. Punctuations, or sudden shifts, in these equilibria determine the patterns of technology diffusion. The time for an equilibrium punctuation depends on the rate of incremental improvement of both technologies, and on the system’s resistance to switching between equilibria. If the new technology has a higher rate of incremental improvement, it is adopted faster, and adoption may precede performance parity if the system’s resistance to switching is low. Adoption of the new technology may trail performance parity if the system’s resistance to switching is high. The authors thank two anonymous referees for very helpful comments on a previous version of this article. This research was financially supported by Xerox