A Punctuated-Equilibrium Model of Technology Diffusion

• Published in: Management science Vol. 45; no. 2; pp. 160 - 177
• Main Authors: Loch, Christoph H, Huberman, Bernardo A
• Format: Journal Article
• Language: English
• Published: Linthicum, MD INFORMS 01.02.1999; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Applied sciences; Business innovation; dynamic systems; Emerging technology; Equilibrium; Equilibrium models; Evolution; evolutionary models; Exact sciences and technology; Firm modelling; Incumbents; Innovation; Innovation diffusion; Innovations; Management science; Market positioning; Mathematical models; Modeling; network externalities; New technology; Operational research and scientific management; Operational research. Management science; path dependence; Performance technology; Positive externalities; Product development; punctuated equilibria; Punctuation; Simulation; Studies; Technological change; Technological innovation; Technology; technology diffusion; Simulation; Diffusion; Performance; Technology
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.45.2.160

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.