The speed of technological adoption under price competition: two-tier vs. one-tier industries

The present paper examines the firms' incentives to adopt a new cost reducing technology in vertically related markets, as well as, the effects of the vertical relations on the firms' timing of adoption. It demonstrates that in vertically related industries, independently of the upstream market structure (either upstream separate firms or upstream monopoly), downstream firms always have strong incentives to adopt the new technology, while in equilibrium there is technology diffusion. Further, comparing the speed of the firms' technology adoption in one-tier and two-tier industries, we show that, independently of the upstream market structure, technology adoption may occurs earlier in two-tier than in one-tier industries depending on the intensity of the final market competition, the drasticity of the new technology and the bargaining power distribution in the market.