2012 Volume 27 Issue 2 Pages 277-298
In this paper, we consider two innovating firms diffusing incompatible technologies and their decision of consumer targeting. The technology adoption is made in two steps. First, once the firms sell their products to their respective targeted consumer, the technology is diffused successively by word-of-mouth communication from the initial consumer to other consumers linked along the network. Then, in the second step, each consumer imitates the technology the neighbors use which fares better, and through this process of imitation, the technology distribution keeps evolving until it reaches the long-run steady state. We consider two cases; when firms are myopic enough to neglect the imitation possibility and when they are sophisticated enough to take the possibility into account. We demonstrate that if firms are myopic, the early innovator chooses the minmax location which surprisingly turns out to be equivalent to the node with the highest closeness centrality. On the other hand, if firms are sophisticated, the best target will tend towards a hub, although the minmax principle in general keeps valid in the sense that it should be the minmax location after considering imitation.
