Dynamics of Technological Adoption in Hardware/Software Systems, The: The Case of Compact Disc Players

Interoperability, Competition Policy and Antitrust and Standards

Article Snapshot


Neil Gandal and Michael Kende


RAND Journal of Economics, Vol. 31, No. 1, pp. 43-61, 2000


This paper considers why consumers adopt new technology.

Policy Relevance

Policymakers wishing to encourage technology adoption can use different approaches. The variety of software that goes with hardware is a key factor.

Main Points

  • Consumers choose to buy a new technology as a result of two factors, the price and the variety of products that work with it.

  • Factors that businesses and policymakers might use to increase the adoption of a new technology include hardware subsidies, developing software for the hardware, and making it work with older technologies (“backwards compatibility”).

  • “Network effects” mean that a product becomes more valuable to a consumer when there are more other users.

  • With CD players, network effects come from the fact that the (hardware) players are more valuable if more (software) disks work with them. This variety was a significant factors in adoption.

  • CD player technology was available to many firms, but only a few firms controlled the technology for making disks.

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