Disruption costs and the choice of technology

We study technology adoption in a dynamic model of price competition. Adoption involves disruption costs and learning by doing. Because of disruption costs, the adopting firm begins in a market disadvantage, which may persist if its rival captures the buyers it needs to learn the technology. The prospect of future rents by rival results in (i) failure to adopt Pareto superior technologies; (ii) an equilibrium preference for the choice of technologies with smaller (discounted) social value but flows payoffs that are received earlier firm is exposed to more competition.