Technology Adoption in an OLG model with forward-looking agents

We investigate the effects of forward looking behaviour in technology adoption. The setup is an overlapping generation model where agents choose between two alternative networks taking in consideration the installed base as well as the expected base. In other words users not only keep into account the actions of previous players, but also form expectations over future generations’ choices before deciding which technology to purchase. The latter element is the distinctive feature of our approach. Contrary to the existing literature, we consider users that receive technology benefits over their whole life-time, rather than only upon purchasing one technology. As multiplicity of equilibrium is to be expected we introduce stochastic payoffs such that agents coordinate their expectations on a unique outcome. We consider both the case of incompatible and compatible technology within our OLG setup, and show that technologies cannot lock-in, that is no technology can emerge as dominant in the long run. This realistic conclusion differs from standard results in the existing literature. We thank Rabah Amir, Paul Belleflame, Jean Gabszewicz, Jakub Steiner, Sebastian Pouget and seminar participants at several conferences for useful comments and suggestions on earlier versions of the paper. Filomena Garcia gratefully acknowledges the support of a grant from the Fundação para a Ciência e Tecnologia and Ministério da Ciência e Tecnologia de Portugal. The usual disclaimer applies.