Preemption and Rent Equalization in the Adoption of New Technology

TLDR

Precommitment equilibria in timing games typically require diffusion of adoption. The study investigates how the adoption of a new technology illustrates the effects of preemption in timing games. A new continuous‑time formalism is introduced that captures the limit of discrete‑time mixed‑strategy equilibria in games of timing. The threat of preemption equalizes rents in a duopoly but not in general oligopoly; when preemption gains are small, the optimal symmetric outcome is a late‑adoption equilibrium.

Abstract

We study the adoption of a new technology to illustrate the effects of preemption in games of timing. We show that the threat of preemption equalizes rents in a duopoly, but that this result does not extend to the general oligopoly game. If the gain to preemption is sufficiently small, then the optimal symmetric outcome, which involves "late" adoption, is an equilibrium. This contrasts with Reinganum's result that in precommitment equilibria there must be "diffusion". We develop a new and richer formalism for modeling games of timing, which permits a continuous-time representation of the limit of discrete-time mixed-strategy equilibria.