Multiplant Firms and Innovation Adoption and Diffusion

• Published in: Southern economic journal 2004-01, Vol.70 (3), p.661-671
• Main Author: Jensen, Richard A.
• Format: Article
• Language: English
• Subjects: Business creativity; Business strategies; Capital costs; Comparative analysis; Continuous casting; Corporate size; Cost control; Cost savings; Economic costs; Economic theory; Economics; Economies of scale; Emerging technology; Equilibrium; Firm theory; Game theory; Influence; Information sharing; Innovation; Innovation adoption; Innovation diffusion; Innovations; Nash equilibrium; Nuclear power plants; Plant size; Production costs; Profit planning; Profitability; Profits; Small and medium sized enterprises; Steel industry; Studies; Success; Technological innovation; Technological innovations; Technology adoption; Technology transfer; Uncertainty
• ISSN: 0038-4038; 2325-8012
• DOI: 10.1002/j.2325-8012.2004.tb00595.x

A new theoretical explanation is provided for the empirical observation that large firms usually adopt sooner, although there are notable exceptions. The analysis focuses on the adoption of an innovation of uncertain profitability by a large firm with two plants and a small firm with one. Marginal production costs are increasing in each plant, and economies of multiplant operation are possible. These have conflicting effects on the incentive to adopt. The large firm benefits more from adopting a success. However, if an adopter must shut down a plant to learn about the innovation, the loss of multiplant economies reduces the large firm's incentive to adopt. Absent multiplant economies, the large firm is more likely to lead a diffusion because its greater return from a success dominates. However, the small firm is more likely to lead a diffusion if there are multiplant economies and the large firm's learning cost disadvantage dominates.