Technology cycle and its multiple equilibria

Abstract

This paper shows the existence of multiple equilibria in technology the cycle. According to Cho (2008), two main reasons of faster replacement demand for main computer systems are faster technological progress and increased demand for services a telecommunication company provides. This paper primarily focuses on the role of faster technological progress due to the faster replacement demand for mainframe computer systems. The cyclical relationship among replacement demand for mainframe computer systems, faster technological progress, and R&D expenditure shows multiple equilibria in technology. The technology cycle can happen as follows. Increased replacement demand for mainframe computer systems is induced by faster technological progress in computer industry. Then, this induced replacement demand can increase R&D expenditure in the computer industry. Again, this increased R&D expenditure also causes faster technological progress. Using data from Cho (2008) and a simple calibration, I show the existence of multiple equilibria in the above technology cycle, which exist in both the lower part and higher part of technology cycle.