Adoption of network technologies in the presence of converters

In many high-tech industries, the emergence of new digital technologies allows companies to develop converters to overcome technology incompatibility. In this paper, we analyze the effects of converter introduction on the adoption process of competing, incompatible technologies in the presence of network externalities. Converter introduction may accelerate, extend or reverse the technology lock-in process. We determine which conversion options are profitable for weak as well as for dominant incumbents, depending on the timing of converter introduction and the degrees of conversion. We find that the optimal strategy for weak incumbents is to introduce full one-way converters early. For dominant incumbents, the optimal conversion option is to provide two-way converters with partial compatibility for the users of the competing network at a later introduction time. We illustrate our analytical results with numerical examples.