Demand and Supply in New Markets: Diffusion with Bilateral Learning
AbstractThis paper explores 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 which 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 InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 96-15.
Date of creation: 1996
Date of revision:
Publication status: Published in RAND JOURNAL OF ECONOMICS, Vol. 29, 1998, pages 215-233
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Web page: http://econ.duke.edu/
Find related papers by JEL classification:
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- D4 - Microeconomics - - Market Structure and Pricing
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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