Technology Adoption in Critical Mass Games: Theory and Experimental Evidence

Abstract

We analyze the choices between two technologies A and B that both exhibit network eects. We introduce a critical mass game in which coordination on either one of the stan- dards constitutes a Nash equilibrium outcome while coordination on standard B is assumed to be payo¤-dominant. We present a heuristic de…nition of a critical mass and show that the critical mass is inversely related to the mixed strategy equilibrium. We show that the critical mass is closely related to the risk dominance criterion, the global game theory, and the maximin criterion. We present experimental evidence that both the relative degree of payodominance and risk dominance explain players'choices. We …nally show that users' adoption behavior induces …rms to select a relatively unrisky technology which minimizes