The declining-price paradox of new technologies

The declining prices of new technology products often leads decision makers to postpone a capital investment and wait for lower prices. This paper makes a distinction between the prices of technology elements and the prices of components and systems. There are many cases where the price reduction over time applies only to some elements of the system, while the total price of the improved system remains almost the same. In these cases, a declining-price paradox suggests that the more the price of the investment is subject to future reduction, the more urgent it is to invest in this technology immediately. The paper presents a model incorporating learning considerations in investment decision making, and states the conditions where the paradox applies.