Investment in Technological Innovations under Rivalry and Uncertainty.dvi
نویسندگان
چکیده
Investments in the area of technological innovations are particularly risky, since, apart from price uncertainty, firms must take into account not only uncertainty in the arrival of innovations but also the presence of potential rivals. Therefore, we develop an analytical framework for sequential investment in order to determine how duopolistic competition impacts a firm’s technology adoption strategy. We assume that firms either adopt a compulsive strategy and invest sequentially in each technology that becomes available or a leapfrog/laggard strategy, whereby they first wait for a new technology to arrive and then decide whether to invest in a newer or an older version, respectively. Thus, we determine both the optimal technology adoption strategy, and, within each strategy, the optimal investment rule. Results indicate that the relative loss in the value of a leader due to the presence of a rival decreases as the first–mover advantage and the rate of innovation increase, yet increases with greater price uncertainty. Intriguingly, while technological uncertainty has a non–monotonic impact on the optimal investment threshold of a follower, it does not impact a leader’s investment decision. Finally, we compare the investment strategies and illustrate how, unlike in the case of monopoly, the compulsive strategy always dominates the leapfrog/laggard strategy.
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