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Market growth and the diffusion of multiproduct technologies

Author: Kim, Taekwon ; Röller, Lars-Hendrik ; Tombak, MihkelINSEAD Area: Economics and Political Science ; Technology and Operations Management ; Technology and Operations Management Series: Working Paper ; 89/57/EP/TM Publisher: Fontainebleau : INSEAD, 1989.Language: EnglishDescription: 27 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper examines a game of multiproduct technology adoption. A dynamic duopoly model with two related products under various demand scenarios is considered. Firms choose when to switch from a single to a more flexible and more expensive multiproduct technology. Only simultaneous adoption of the multiproduct technology as equilibria in growing markets with substituable demands is found. In particular, it is shown that a range of simultaneous adoption Nash equilibria exists and is characterised in terms of cost anddemand conditions. By using the perfection refinement of the Nash concept a unique equilibrium which coincides with the latest Nash equilibrium adoption time is found.Furthermore, whenever the equilibrium adoption time is nonzero, firms adopt before it is socially optimal. Diffusion of the multiproduct technology as an equilibrium is restored under three scenarios : complementary demands; declining markets; and oligopoly
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This paper examines a game of multiproduct technology adoption. A dynamic duopoly model with two related products under various demand scenarios is considered. Firms choose when to switch from a single to a more flexible and more expensive multiproduct technology. Only simultaneous adoption of the multiproduct technology as equilibria in growing markets with substituable demands is found. In particular, it is shown that a range of simultaneous adoption Nash equilibria exists and is characterised in terms of cost anddemand conditions. By using the perfection refinement of the Nash concept a unique equilibrium which coincides with the latest Nash equilibrium adoption time is found.Furthermore, whenever the equilibrium adoption time is nonzero, firms adopt before it is socially optimal. Diffusion of the multiproduct technology as an equilibrium is restored under three scenarios : complementary demands; declining markets; and oligopoly

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