Intergenerational diffusion of innovations
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In the paper, we explicitly model the intergenerational adoption decisions of heterogeneous adopters when an infinite number of successive generations of a new innovation are expected to arrive randomly in the market and each generation assumes an identical and predetermined price-decreasing path. Three intergenerational diffusion patterns are selected for theoretical analyses in our consumer model due to their strong empirical bearings among consumer durables, and the closed-form analytical solutions to the optimal expected adoption times of different consumers in a Markov Stationary Competitive Equilibrium with rational expectations (MSCE) are derived for each scenario. To a social planner who is assumed to be constrained by consumers' expectations, the majority of the population adopt too early in the steady state (i.e. the sales peak happens too soon), while the last group generally adopts too late (i.e. the full saturation is reached too slow). Comparing with the benchmark case of no compatibility across generations, the presence of backward compatibility unanimously accelerates the adoptions of the majority consumers in the steady state and makes the laggards worse off. Using similar assumptions, an intergenerational diffusion model is developed to account for firms' adoption decisions for successive generations of production technologies. And the implications of the firm version largely parallel those derived from the consumer model. Using the Cross-Country Historical Adoption of Technology (CHAT) data set, a two-stage empirical analysis is performed to identify potential technology-specific and country-specific factors that may have significantly affected the intergenerational diffusion patterns and speeds of 9 major consumer and production technologies in over 100 countries during the last 200 years. Keywords: intergenerational diffusion, network externalities, backward compatibility, Markov property.