Demand and Supply in New Markets: Diffusion with Bilateral Learning
AbstractI explore the endogenous joint evolution of demand and supply in new markets. Firms and consumers learn, in a Bayesian fashion, by observing the behavior of other firms and consumers, respectively. As a result, endogenous information diffusion takes place on both sides of the market. In equilibrium, entry occurs in waves and its level depends on two distinct informational effects. The model identifies an externality that provides a natural explanation for S-shaped diffusion paths: entry reveals information to the consumers about the value of the new product, and thus early waves of entry affect the expected profitability of subsequent entry.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 29 (1998)
Issue (Month): 1 (Spring)
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Web page: http://www.rje.org
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- Rob, Rafael & Vettas, Nikolaos, 2001.
"Foreign Direct Investment and Exports with Growing Demand,"
CEPR Discussion Papers
2786, C.E.P.R. Discussion Papers.
- Rafael Rob & Nikolaos Vettas, 2003. "Foreign Direct Investment and Exports with Growing Demand," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 629-648, 07.
- Rafael Rob & Nikolaos Vettas, 2003. "Foreign Direct Investment and Exports with Growing Demand," PIER Working Paper Archive 03-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Rafael Rob & Nikolaos Vettas, 2001. "Foreign Direct Investment and Exports with Growing Demand," Penn CARESS Working Papers f8c083d9257897f97ff49d054, Penn Economics Department.
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