Sooner or Later? The Role of Adoption Timing in New Technology Introduction

Motivated by several industry examples, we study the interaction between a technology provider introducing a new technology and downstream manufacturers adopting the new technology into their products. The manufacturers, once committed to their adoption timing, first cooperate in making demand-boosting investments to promote the technology and then compete in price in the product market. Our main objective is to explore the important question of how the technology provider manipulates manufacturers' adoption timing.We develop a stylized multi-stage game-theoretic model with one technology provider and two symmetric manufacturers to study the (static) adoption timing from perspectives of the manufacturers, the technology provider, and the ecosystem that comprises both parties, and derive pure strategies for them. We find that in the absence of the technology provider's intervention, in equilibrium manufacturers prefer simultaneous adoption when market competition — proxied by product substitutability — is very mild, and sequential adoption otherwise. In particular, under sequential equilibrium, the second manufacturer strategically postpones adoption in order to freeride on the first manufacturer's demand-boosting investment. We show that manufacturers' equilibrium adoption time is not necessarily in line with the technology provider's interest. To align manufacturers' preferences with that of the technology provider, we suggest that when competition is in a relatively mild region, the technology provider can make an initial investment to incentivize both manufacturers to adopt the technology early, whereas when competition intensity is above a certain threshold, an exclusive period should instead be offered to one manufacturer to keep the other from adopting the technology early. Finally, our analysis on system efficiency reveals that the technology provider's self-interested intervention often improves the efficiency of the system