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Learning and the Timing of New Technology Adoption

This paper studies the adoption and diffusion of a product innovation in a duopoly market. Firms are asymmetric, and learning is endogenously determined by the volume of sales. In equilibrium, both high- and low-quality firms may lead adoption, and first-movers are often uniquely determined by initial beliefs. Equilibrium adoption patterns are consistent with and explain several empirical phenomena. To maximize welfare, a social planner prefers sequential adoption over a wider range of beliefs than occurs in equilibrium. A change in market structure, specifically a merger to monopoly, unambiguously improves the timing of initial adoption, but learning may be less efficient.