1995 Reports

The Provision of (Two Way) Converters in the Transition Process to a New Incompatible Technology

Choi, Jay Pil

This paper analyzes the dynamic provision of converters in the transition process between two incompatible technologies. I derive the equilibrium behavior in the provision of converters and compare it to the socially optimal outcome. I find that there can be two types of market inefficiency in the provision of converters. First, converters can be supplied by the "wrong" group. Second, the timing of provision may be too late since the providers of converters ignore the positive externality that their patronage would confer on the users of the rival technology.