When to adopt a service innovation: Nash equilibria in a competitive diffusion framework

In modeling competitive dynamics we consider settings where incumbents anticipate a potential failure of the innovation. We use the trajectories for the customer bases to model an optimal adoption response problem faced by one of the incumbent firms when the adoption time for the other incumbent can be anticipated or is pre-announced, and analyze this problem in the absence of market expansion or intra-generational customer churn. Using the optimal response results, we provide the Nash equilibrium analysis of the adoption decisions by competing incumbent firms and derive sufficient conditions for the “now-now”, “now-never” and “never-never” adoption equilibria. We use the trading volume data from the foreign exchange markets to estimate the parameters of the competitive diffusion dynamics for our model and to conduct a numerical investigation of the impact of the uncertainty associated with the success of the innovation on the incumbents' Nash equilibrium adoption times.