The Diffusion of Complementary Technologies : An Empirical Test

We analyze the simultaneous diffusion of multiple process technologies that are related. A new econometric model is used to examine the presence of complementarities, testing for strong one-step-ahead non-causality and strong simultaneous independence. Results indicate significant complementarities between CAD and CNC technologies. Prior adoption of either of the two technologies has a large effect on the posterior adoption of the other one; in addition, simultaneous adoption is found to be more likely than adoption of the two technologies in isolation. Consistent with the presence of complementarities, we also find evidence of substantial price cross-effects: a decrease in the price of CAD (or CNC) increases the adoption probability of CNC (or CAD). Lastly, the increase in the likelihood of adopting the complementary technology turns out to depend on several plant-specific moderating factors