A punctuated-equilibrium model of technology diffusion

We present an evolutionary model of technology diffusion in which an old an d a new technology are available, both of which improve their performance i ncrementally over time. Technology adopters make repeated choices between t he established and the new technology based on their perceived performance, which is subject to uncertainty. Both technologies exhibit positive extern alities, or performance benefits from others using the same technology. We find that the superior technology will not necessarily be broadly adopte d by the population. Externalities cause two stable usage equilibria to exi st, one with the old technology being the standard and the other with the n ew technology the standard. Punctuations, or sudden shifts, in these equili bria determine the patterns of technology diffusion. The time for an equili brium punctuation depends on the rate of incremental improvement of both te chnologies, and on the system's resistance to switching between equilibria. If the new technology has a higher rate of incremental improvement, it is adopted faster, and adoption may precede performance parity if the system's resistance to switching is low. Adoption of the new technology may trail p erformance parity if the system's resistance to switching is high.