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Abstract

In this paper we provide a generalization of the standard models of the diffusion of a new product. Consumers are heterogeneous and risk averse, and the firm is uncertain about the demand curve: both learn from past observations. The attitude towards risk has important effects with regard to the diffusion pattern. In our model, downward-biased signals to consumers can prevent the success of the product, even if its objective quality is high: a “lock-in” result. We show in addition that the standard logistic pattern can be derived from the model. Finally, we discuss the asymptotic behavior of the learning dynamics, with regard to the multiplicity and the stability of equilibria, and to their welfare properties.

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Bibliographic Info

Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2009_27.

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Date of creation: 09 2009
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Handle: RePEc:eei:rpaper:eeri_rp_2009_27

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Related research

Keywords: Heterogeneity; Multiple equilibria; Lock-in; Product diffusion; Risk aversion.;

Other versions of this item:

Find related papers by JEL classification:

• L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
• D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
• O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

This paper has been announced in the following NEP Reports:

• NEP-ALL-2009-09-26 (All new papers)
• NEP-CBE-2009-09-26 (Cognitive & Behavioural Economics)
• NEP-UPT-2009-09-26 (Utility Models & Prospect Theory)

References

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1. Cowan, R. & Jonard, N., 2003. "The dynamics of collective invention," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 513-532, December.
   
   • Cowan,Robin & Jonard,Nicolas, 2000. "The Dynamics of Collective Invention," Research Memoranda 018, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
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   • Cowan,Robin & Jonard,Nicolas, 1999. "Network Structure and the Diffusion of Knowledge," Research Memoranda 026, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
6. Toshihiko Mukoyama, 2004. "Rosenberg's "Learning by Using" and Technology Diffusion," Working Papers 05003, Concordia University, Department of Economics.
   
   • Mukoyama, Toshihiko, 2006. "Rosenberg's "learning by using" and technology diffusion," Journal of Economic Behavior & Organization, Elsevier, vol. 61(1), pages 123-144, September.
   • MUKOYAMA, Toshihiko, 2005. "Rosenberg's "Learning by Using" and Technology Diffusion," Cahiers de recherche 21-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
7. Abhijit Banerjee & Drew Fudenberg, 2010. "Word of Mouth Learning," Levine's Working Paper Archive 723, David K. Levine.
   
   • Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
8. Rabik Ar Chatterjee & Jehoshua Eliashberg, 1990. "The Innovation Diffusion Process in a Heterogeneous Population: A Micromodeling Approach," Management Science, INFORMS, vol. 36(9), pages 1057-1079, September.
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10. repec:oxf:wpaper:303 is not listed on IDEAS
11. Jensen, Richard, 1982. "Adoption and diffusion of an innovation of uncertain profitability," Journal of Economic Theory, Elsevier, vol. 27(1), pages 182-193, June.
12. Verbrugge, Randal, 2000. "Risk aversion, learning spillovers, and path-dependent economic growth," Economics Letters, Elsevier, vol. 68(2), pages 197-202, August.
13. Tsur, Yacov & Sternberg, Menachem & Hochman, Eithan, 1990. "Dynamic Modelling of Innovation Process Adoption with Risk Aversion and Learning," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 336-55, April.
14. Bogliacino, F & Rampa, G, 2009. "Monopolistic Competition and New Products: A Conjectural Equilibrium Approach," MPRA Paper 15120, University Library of Munich, Germany.
    
    • Francesco Bogliacino & Giorgio Rampa, 2010. "Monopolistic competition and new products: a conjectural equilibrium approach," Journal of Economic Interaction and Coordination, Springer, vol. 5(1), pages 55-76, June.
15. Joe A. Dodson, Jr. & Eitan Muller, 1978. "Models of New Product Diffusion Through Advertising and Word-of-Mouth," Management Science, INFORMS, vol. 24(15), pages 1568-1578, November.
16. Vijay Mahajan & Robert A. Peterson, 1978. "Innovation Diffusion in a Dynamic Potential Adopter Population," Management Science, INFORMS, vol. 24(15), pages 1589-1597, November.

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Cited by:

1. Bogliacino, F & Rampa, G, 2009. "Monopolistic Competition and New Products: A Conjectural Equilibrium Approach," MPRA Paper 15120, University Library of Munich, Germany.
   
   • Francesco Bogliacino & Giorgio Rampa, 2010. "Monopolistic competition and new products: a conjectural equilibrium approach," Journal of Economic Interaction and Coordination, Springer, vol. 5(1), pages 55-76, June.
2. Giorgio Rampa & Francesco Bogliacino, 2012. "Expectational Bottlenecks and the Emerging of New Organizational Forms," Quaderni di Dipartimento 159, University of Pavia, Department of Economics and Quantitative Methods.

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