We consider a model in which an innovating monopolist of a technologically superior intermediate input must sell this product to final output producers. Prior research shows that, with complete information, the monopolist's optimal strategy will lead to complete adoption of this technologically superior innovation. In this paper we show that, when the price of some competitively supplied input used in the final product market is endogenous and is altered by adoption of the innovation, then the optimal pricing strategy of the monopolist may lead to incomplete innovation. Thus, the conclusion of complete adoption of the superior technology is partly attributable to the partial equilibrium nature of prior models.
This report is published in Economica, Vol. 67, No. 268 (Nov., 2000), pp. 525-542
LAPAN, HARVEY E. and Moschini, GianCarlo, "Incomplete Adoption of a Superior Innovation" (1999). Economic Staff Paper Series. 338.