Job Market paper: Optimal timing of technology adoption by incumbents: war of attrition versus preemption (2016)

pdf

This paper considers two incumbent firms with an option to adopt an innovative technology. The firms engage in a Stackelberg competition where they decide upon both the investment moment and the investment size. I find that there is only a first-mover advantage when the degree of innovation is large or when the new technology produces a close substitute. Otherwise, firms face a second-mover advantage. This happens even when there is no information spillover, imperfect information or any type of asymmetry. When such a second-mover advantage is present, firms either want to stay alone in the old market or want to set a larger capacity as Stackelberg follower. This paper also shows that market uncertainty decreases the second-mover advantage, but has no influence on whether the late mover adopts.

Click here to read this paper.