Decision
Sciences, 2003, Vol. 34,
No. 4, pp. 643-675.
Strategic Decisions of New Technology Adoption under Asymmetric
Information: A
Game Theoretic Model
Kevin Zhu
University of California
John P.
Weyant
Abstract
In this paper we explore strategic decision making in new technology adoption
by utilizing economic analysis. We show how asymmetric information affects
firms’ decisions to adopt the technology. We do so in a two-stage
game-theoretic model where the first-stage
investment results in the acquisition of a new technology that, in the second stage, may give the firm a competitive advantage
in the product market. We
compare two information structures under which two competing firms have
asymmetric information about the future performance (i.e., post-adoption costs) of the new technology. We find
that equilibrium strategies under asymmetric information are quite different
from those under symmetric information. Information asymmetry leads to
different incentives and strategic behaviors in the technology adoption game. In contrast to conventional wisdom, our model shows that market
uncertainty may actually induce firms to act more aggressively under certain
conditions. We also show that having
better information is not always a good thing. These results illustrate a key departure from established decision theory.
Key words:
technology adoption, strategic decisions, asymmetric information,
technology-based competition, information economics.