Technology Adoption Under Asymmetric Market Structure

This paper examines the impact of vertical integration on the timing of adoption of a cost-reducing technology. Combining the technology adoption and vertical relations literatures in a simple duopoly model, I compare the technology adoption patterns under different vertical structures. In particular, the study of the asymmetric case, where one firm is integrated while the other one is separated, allows me to make three main contributions. First, I show that the effect of vertical integration on technology adoption by one firm is influenced significantly by the vertical structure of the other firm. Second, I consider the two main types of technology adoption games under an asymmetric set-up and broaden the understanding of the underlying mechanisms for the solving of such games. Finally, I develop an industrial policy aimed at encouraging firms to adopt the technology at the socially optimal timing.\