Why Delay in Adoption of New Technology in the Presence of Network Effect

The networks literature suggests a network´s value increases in the number of locations it serves (the ldquonetwork effectrdquo) and the number of its users (the ldquoproduction scale effectrdquo). In this article we discuss one of the technology innovation in optical industry- photonic integrated circuit (PIC) technology. We show that, in one hand, consumers (traditional carriers) would be very careful to adopt a new technology or product in presence of network effect, which results in new technology adoption delays increasing in the size of traditional networks. In the other hand, if benefit from this new technology is not certain, dominant suppliers (equipment vendors) prefer waiting and collecting information to make further decision, so in some time network effect reduce innovation incentives.