Competition in technology adoption with revenue and technology uncertainty

Abstract

The thesis analyzes the investment decision on technology adoption under revenue and technology uncertainty. In a duopoly market, the firms make a decision on investing on a technology at the beginning of the time horizon. That is an irreversible investment, and as a consequence of their investment, firms invent the technology in an uncertain time in the future. This time depends on the amount of investment and the characteristics of the firms. When they adopt the technology, they start to collect revenue with that technology or technology related service. It is advantageous to be the first to adopt the technology, as the leaders get big pie usually. Also in this model, the revenue rates decrease by time with discrete market shocks, which causes the revenue uncertainty and limited economical life of the market. The leader company is affected less from those shocks so that the competition is about being the leader. This model is analyzed under three different cases where the firms compete and set decisions simultaneously, they decide sequentially and a single decision maker decides on behalf of them in order to increase the total profit. It is shown that there is a single equilibrium of this model. Computational results and parametric analysis are fulfilled as well. It is shown that the companies get the highest expected profits in the first best case, simultaneous decision case and sequential decision case respectively.