On vertical relations and the timing of technology adoption

• We study the timing of technology adoption in vertically related markets.
• Input outsourcing can accelerate technology adoption.
• The adoption timing depends on bargaining power distribution and contract type.
• Technology can be adopted earlier when the upstream bargaining power is low.
• Technology can be adopted earlier when two-part tariffs are used.

We study the timing of new technology adoption in markets with input outsourcing, and thus with vertical relations. We find that technology adoption can take place earlier when firms engage in input outsourcing than when they produce the input in-house. Hence, the presence of vertical relations can accelerate the adoption of a new technology. We also find that particular features of a vertically related market, such as the distribution of bargaining power and the contract type through which trading is conducted, can crucially affect the speed of technology adoption.