Introduction
The introduction of new software in the marketplace, such as high-definition televisions, makes various groups act autonomously and in their own best interest. First, the television manufacturers set prices to motivate the current users to upgrade to the new system. Their aim is to maximize profit irrespective of whether these prices will maximize profit for the software providers or optimize value for consumers. On the other hand, the software providers will choose an option that maximizes their profits. They will chose either providing the new content or maintaining the existing content. Their choice may not be in the best interest of the manufacturers and viewers. Finally, the consumers will choose an option that offers them the maximum value irrespective of whether it maximizes profit for the other two groups. Thus, the conflicting interest creates a coordination problem in the market place. This problem slows down the pace of adoption of the high-definition television. The paper seeks to discuss the solution to the coordination problems associated with the adoption of the high-definition televisions.
Solution
The problem of trying to coordinate the actions of the three autonomous players can be resolved using the concept of game theory. Game theory focuses on scenarios where the players in the market act autonomously from one another (Bade and Parkin 109). At the same time the players act purposefully with one another in carrying out what is in their best self-regard. The theory also looks at the scenarios where the players receive payoffs that are influenced by the activities of the other players. In the high-definition television game, the television manufacturers respond by producing a certain number of television sets and they set their prices. Further, they respond by providing less television sets if there are less content or charge lower prices if the consumers are not buying the television sets.
The software providers can act by providing a lot of content, none or some (Brickley, Smith and Zimmerman 92). The software providers respond by increasing the amount of content available if the number of viewers increase or by charging more for the content. Finally, the viewers can choose to upgrade to the high-definition television or remain in the analog system. The viewers can respond to both providers in different ways (McAdams 240). They can respond to the television manufacturers by buying the sets at a faster rate when the prices are low. Also, they can respond to the content providers by switching faster when there is more content and when the prices are low (Fisher 176).
The problem of the high-definition television is an example of the chicken-and-egg problem (Baldwin and Scott 167). In this case, the television manufacturers and software providers are unwilling to enter the market because a few consumers have embraced the new technology. Also, the consumers are hesitant to embrace the new technology because they believe that the content is not adequate. This action can result in a delay before a new technology is adopted in the market because the players are acting in their own best interest (Fisher 198). To resolve this problem, it is important to allow the three groups to play the game simultaneously. In this case, the television manufacturers have to provide the high-definition televisions, at the same time, the software providers should find it profitable to provide content for the high-definition televisions, and the consumers must find the set of televisions valuable. If the three players respond to the technologies at the same time, then the new televisions will be embraced at a sensible speed (Mankiw 298).
Summary
The coordination problems with the high-definition televisions or any other new technology can be resolved using the concept of game theory. However, it is important to evaluate the each case separately because previous studies showed that implementation of new technology is much easier if the new technology is compatible with the old one.
Works Cited
Bade, Robin and Michael Parkin. Essential Foundations of Economics, USA: Pearson Education, 2013. Print.
Baldwin, William and John Scott. Market Structure and Technological Change, UK: Taylor & Francis Publishers, 2013. Print.
Brickley, James, Clifford Smith and Jerold Zimmerman. “An Introduction to Game Theory and Business Strategy”. Journal of Applied Corporate Finance. 13.2 (2015): 84-98. Print.
Fisher, Ruth. Winning the Hardware-Software Game: Using Game Theory to Optimize the Pace of New Technology Adoption, USA: Pearson Education, 2009. Print.
Mankiw, Gregory. Principles of Microeconomics, USA: South-Western Cengage Learning, 2012. Print.
McAdams, Richard. “Beyond Prisoners’ Dilemma: Coordination, Game Theory, and Law.” Southern California Law Review. 82.2 (2009): 209-260. Print.