Technology adoption in markets with network effects: Theory and experimental evidence |
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Authors: | Claudia Keser Irina Suleymanova Christian Wey |
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Affiliation: | 1. Luxembourg Centre for Systems Biomedicine, Luxembourg University, L-4365, Luxembourg;2. Chemical & Biological Engineering, University of British Columbia, Vancouver, Canada;3. School of Chemical Engineering, Yeungnam University, Gyeongsan 712-749, Republic of Korea |
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Abstract: | We examine a technology-adoption game with network effects in which coordination on either technology A or technology B constitutes a Nash equilibrium. Coordination on technology B is assumed to be payoff dominant. We define a technology’s critical mass as the minimal share of users, which is necessary to make the choice of this technology the best response for any remaining user. We show that the technology with the lower critical mass implies risk dominance and selection by the maximin criterion. We present experimental evidence that both payoff dominance and risk dominance explain participants’ choices in the technology-adoption game. The relative riskiness of a technology can be proxied using either technologies’ critical masses or stand-alone values absent any network effects. |
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