Content area
Full Text
We present an evolutionary model of technology diffusion in which an old and a new technology are available, both of which improve their performance incrementally over time. Technology adopters make repeated choices between the established and the new technology based on their perceived performance, which is subject to uncertainty. Both technologies exhibit positive externalities, or performance benefits from others using the same technology.
We find that the superior technology will not necessarily be broadly adopted by the population. Externalities cause two stable usage equilibria to exist, one with the old technology being the standard and the other with the new technology the standard. Punctuations, or sudden shifts, in these equilibria determine the patterns of technology diffusion. The time for an equilibrium punctuation depends on the rate of incremental improvement of both technologies, and on the system's resistance to switching between equilibria. If the new technology has a higher rate of incremental improvement, it is adopted faster, and adoption may precede performance parity if the system's resistance to switching is low. Adoption of the new technology may trail performance parity if the system's resistance to switching is high.
(Technology Diffusion; Punctuated Equilibria; Network Externalities; Path Dependence; Dynamic Systems; Evolutionary Models; Simulation)
1. Introduction
In the age of gene technology, superconductors and supercomputers, it is often claimed that innovations are mainly breakthroughs from existing technologies. For example, it has been stated that new audio technologies may have failed to replace the established audio CD because none has been able to offer the "necessary ten-fold performance improvement" over the CD technology (Economist 1996). On the other hand, it has been established that much technological progress stems from streams of incremental improvements over time. In a number of industries it is also observed that long periods of incremental improvement tend to be interrupted by short periods of radical innovation (Abernathy and Utterback 1978, Utterback and Suarez 1993). This pattern has been called "punctuated equilibrium," a term that originated in biology (Eldredge and Gould 1972) and subsequently was adopted in the management literature (e.g., Tushman and Anderson 1986, Mokyr 1990).
The question is what drives the interplay between the two: When is incremental innovation dominant, and when (if ever) do radical changes in technology appear? The literature presents a...