The Provision of (Two-Way) Converters in the Transition Process to a New Incompatible Technology.

This paper analyzes the dynamic provision of converters in the transition process between two incompatible technologies. The author derives the equilibrium behavior in the provision of converters and compares it to the socially optimal outcome. He finds that there can be two types of market inefficiency in the provision of converters. First, converters can be supplied by the 'wrong' group. Second, the timing of provision may be too late since the providers of converters ignore the positive externality that their provision would confer on the users of the rival technology. Copyright 1997 by Blackwell Publishing Ltd