Competitive Investment Strategies of Asymmetric Duopoly in Adoption of New Technology

In dynamic uncertain environments, the investment timing of the firm about adopting the existing new technology is influenced by the investment cost, the rival's actions and technological progress. This paper exploits option games approach to present a simplified dynamic asymmetric duopoly continuous time model of technology adoption in the case where irreversible investment in adoption of the existing new technology is in strategic competitive circumstances and facing the threat of a further new technology after the competition setting is established. The model aims to examine the impacts of the asymmetry degree of investment costs and displacement effect of the technology on firms' strategic irreversible investment decisions. The results show that both rapid displacement of the technology and greater difference of investment costs discourage the follower's investment with a further new technology anticipated. Rapid displacement of the technology and smaller difference of investment costs encourage the firm with low cost to invest. Investment strategies of the firms are derived according to market demand. There exists the critical level of cost asymmetry to divide investment strategies into preemptive equilibrium and sequential equilibrium. Under different equilibrium, firms' competitive investment strategies are derived.