Strategic Decisions of New Technology Adoption under Asymmetric Information: A Game-Theoretic Model

• Published in: Decision sciences 2003-11, Vol.34 (4), p.643-675
• Main Authors: Zhu, Kevin, Weyant, John P.
• Format: Article
• Language: English
• Subjects: and Methodological Areas: Economic Analysis and Game Theory; and Strategic Information Systems; and Strategic Information Systems; and Methodological Areas: Economic Analysis and Game Theory; and Technology-Based Competition; and Technology‐Based Competition; Functional Areas: Information Technology; Asymmetric Information; Decision making; Decision theory; Functional Areas: Information Technology; Game theory; Information Economics; Information technology; Interorganizational Systems; Mathematical models; Strategic Decisions; Studies; Technology Adoption
• ISSN: 0011-7315; 1540-5915
• DOI: 10.1111/j.1540-5414.2003.02460.x

ABSTRACT In this paper we explore strategic decision making in new technology adoption by using 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., postadoption 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.