Abstract
We analyze duopolistic firms' adoption of a product innovation in a vertical differentiation model with technological spillovers. We find that regardless of the level of spillovers, the equilibrium adoption patterns are characterized by global, partial, and no adoption for low, intermediate, and high adoption costs, respectively. The distribution of adoption patterns, however, differs across different ranges of spillovers. In particular, we find that equilibrium adoption patterns center on global and no adoption in the presence of intermediate and large spillovers, while the opposite is true for small spillovers. Some comparative statics are performed to further illustrate the effects of spillovers and innovation size on technology adoption.
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