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Why do firms adopt innovations in bandwagons? Evidence of herd behaviour in open standards adoption

This study examines the bandwagon patterns of new technology adoption when firms choose to invest in internet-based, open standards networks under incomplete information. We investigate bandwagon pressure based on economic theories of network effect and herd behaviour. We further hypothesise two moderators on herd behaviour – related technology experience and market competition. Our empirical analysis of 544 firms in the financial services industry shows that a firm’s adoption is positively associated with the extent of adoptions by its competitors and business partners. Furthermore, firms are more likely to imitate competitors in more competitive markets, while their related technology experience helps to mitigate such a tendency of herding. These results shed new light on the informational view of herding in innovation adoption. Firms need to take a long-term view about investing in new technology in the sense that using current technologies may serve as a stepping stone to newer technologies in the future.