Introduction of a New Technology and its Adoption by Competing Manufacturers

Abstract

In a market with a technology provider and two competing manufacturers, we examine the technology introduction strategy of the provider and the technology adoption strategy of the manufacturers. For an underlying technology that improves the product quality in multiples, the provider sells the new technology to both manufacturers in case of small improvements, and sells to one of the manufacturers otherwise. Interestingly, the underlying technology provider’s profit may decrease as the level of new technology improvement increases. For an independent technology that improves the quality additively, the provider always sells the new technology to one of the manufacturers. If the provider sells an underlying/independent technology to one manufacturer only, then it sells to the low-quality manufacturer for moderate level of new technology improvements. Otherwise, the high-quality manufacturer is preferred. Moreover, for each manufacturer, as long as quality of new product exceeds a critical threshold, they remove the old product from the market while introducing a new product adopting the new technology.