A Punctuated-Equilibrium Model of Technology Diffusion

Posted: 15 Sep 1997

See all articles by Christoph H. Loch

Christoph H. Loch

INSEAD - Technology and Operations Management

Bernardo A. Huberman

CableLabs

Date Written: May 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 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 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 precedes performance parity if the system's resistance to switching is low. Adoption of the new technology trails performance parity if the system's resistance to switching is high.

JEL Classification: O14, O31

Suggested Citation

Loch, Christoph H. and Huberman, Bernardo A., A Punctuated-Equilibrium Model of Technology Diffusion (May 1997). Available at SSRN: https://ssrn.com/abstract=10783

Christoph H. Loch

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77305 Fontainebleau
France
+33 1 6072 4477 (Phone)
+33 1 6074 6716 (Fax)

HOME PAGE: www.insead.edu/~loch/fullcv.htm

Bernardo A. Huberman (Contact Author)

CableLabs ( email )

400 W California Ave
Sunnyvale, CA 94086
United States

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