Quality and Price Effects on Technology Adoption

We study the adoption patterns of two competing technologies as well as the effectiveness and optimality of viral pricing strategies. Our model considers two incompatible technologies of differing quality and a market in which valuations are heterogeneous and subject to externalities. We provide partial characterization results about the structure and robustness of equilibria and give conditions under which a technology purveyor can gains in market share. We show that myopic best-response dynamics are monotonic and convergent, and propose two pricing mechanisms using this insight to help a technology seller tip the market in its favor. In particular, we show that non-discriminatory pricing is less costly and just as effective as a discriminatory policy. Finally, we study endogenous pricing using simulations and now find, in contrast to our analytical results with exogenous prices, that a higher quality technology consistently holds a competitive advantage over the lower quality competitor, irrespective of its market share.