Innovation diffusion in networks: the microeconomics of percolation
AbstractWe implement a diffusion model for an innovative product in a market with a structure of social relationships. Diffusion is described with a percolation approach in the price space. Percolation shows a phase transition from a diffusion to a no-diffusion regime. This has strong implications for market demand and pricing. We study the effect of network structure on market diffusion efficiency by considering a number of cases, such as one-dimensional and two-dimensional lattices, small worlds, Poisson networks and Scale-free networks. We consider two measures of diffusion efficiency: the size of diffusion and the diffusion time-length. We find that network connectivity “spreading” is the most important factor for the size of diffusion. Clustering is ineffective. This means that societies with higher dimensionality are better markets for diffusion. This result is most evident for the size of diffusion, while a short average path-length is more important for the speed of diffusion. Endogenous learning curves shift the percolation threshold to higher prices, and constitute an endogenous mechanism of price discrimination. The best market strategy of innovation diffusion is to start with high price and allow for a learning curve.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Eindhoven Center for Innovation Studies in its series Working Papers with number 13-02.
Date of creation: Feb 2013
Date of revision: Feb 2013
Contact details of provider:
Postal: Tema Building 1.40, PO Box 513, 5600 MB Eindhoven
Phone: (+31) (0)40 247 5938
Fax: (+31) (0)40 247 2607
Web page: http://ecis.ieis.tue.nl/welcome
More information through EDIRC
critical transition; demand; learning curves; market efficiency; social networks;
Other versions of this item:
- Paolo Zeppini & Koen Frenken & Luis R. Izquierdo, 2013. "Innovation diffusion in networks: the microeconomics of percolation," Eindhoven Center for Innovation Studies (ECIS) working paper series 13-02, Eindhoven Center for Innovation Studies (ECIS), revised Feb 2013.
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lawrence Blume, 1993.
"The Statistical Mechanics of Best-Response Strategy Revision,"
Game Theory and Information
9307001, EconWPA, revised 26 Jan 1994.
- Blume Lawrence E., 1995. "The Statistical Mechanics of Best-Response Strategy Revision," Games and Economic Behavior, Elsevier, vol. 11(2), pages 111-145, November.
- Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521674096.
- Solomon, Sorin & Weisbuch, Gerard & de Arcangelis, Lucilla & Jan, Naeem & Stauffer, Dietrich, 2000. "Social percolation models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 277(1), pages 239-247.
- Dunia López-Pintado, 2004.
"Diffusion In Complex Social Networks,"
Working Papers. Serie AD
2004-33, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Arthur Campbell, 2013. "Word-of-Mouth Communication and Percolation in Social Networks," American Economic Review, American Economic Association, vol. 103(6), pages 2466-98, October.
- Gerald Silverberg & Bart Verspagen, 2002.
"A Percolation Model of Innovation in Complex Technology Spaces,"
Computing in Economics and Finance 2002
24, Society for Computational Economics.
- Silverberg, Gerald & Verspagen, Bart, 2005. "A percolation model of innovation in complex technology spaces," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 225-244, January.
- Silverberg, G. & Verspagen, B., 2002. "A Percolation Model of Innovation in Complex Technology Spaces," Working Papers 02.12, Eindhoven Center for Innovation Studies.
- Silverberg, G. & Verspagen, B., 2002. "A Percolation Model of Innovation in Complex Technology Spaces," Eindhoven Center for Innovation Studies (ECIS) working paper series 02.12, Eindhoven Center for Innovation Studies (ECIS).
- Eocman Lee & Jeho Lee & Jongseok Lee, 2006. "Reconsideration of the Winner-Take-All Hypothesis: Complex Networks and Local Bias," Management Science, INFORMS, vol. 52(12), pages 1838-1848, December.
- Simona Cantono & Gerald Silverberg, 2008. "A percolation model of eco-innovation diffusion: the relationship between diffusion, learning economies and subsidies," MERIT Working Papers 025, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
- Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521857406.
- Giovanni Pegoretti & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2012. "An agent-based model of innovation diffusion: network structure and coexistence under different information regimes," Journal of Economic Interaction and Coordination, Springer, vol. 7(2), pages 145-165, October.
- Frenken, Koen & Silverberg, Gerald & Valente, Marco, 2008.
"A percolation model of the product lifecycle,"
MERIT Working Papers
073, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
- A. Canepa & P. Stoneman, 2004. "Comparative international diffusion: Patterns, determinants and policies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(3), pages 279-298.
- William A. Brock & Steven N. Durlauf, 2009.
"Adoption Curves and Social Interactions,"
NBER Working Papers
15065, National Bureau of Economic Research, Inc.
- Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
- Alessandra Fogli & Laura Veldkamp, 2012.
"Germs, Social Networks and Growth,"
12-16, New York University, Leonard N. Stern School of Business, Department of Economics.
- Fogli, Alessandra & Veldkamp, Laura, 2012. "Germs, Social Networks and Growth," CEPR Discussion Papers 9188, C.E.P.R. Discussion Papers.
- Laura Veldkamp & Alessandra Fogli, 2012. "Germs, Social Networks, and Growth," 2012 Meeting Papers 1074, Society for Economic Dynamics.
- Alessandra Fogli & Laura Veldkamp, 2012. "Germs, Social Networks and Growth," NBER Working Papers 18470, National Bureau of Economic Research, Inc.
- Argote, L. & Epple, D., 1990. "Learning Curves In Manufacturing," GSIA Working Papers 89-90-02, Carnegie Mellon University, Tepper School of Business.
- Sanjeev Goyal, 2007.
"Introduction to Connections: An Introduction to the Economics of Networks
[Connections: An Introduction to the Economics of Networks]," Introductory Chapters, Princeton University Press.
- Cristopher Moore & M. E. J. Newman, 2000. "Epidemics and Percolation in Small-World Networks," Working Papers 00-01-002, Santa Fe Institute.
- Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
- Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
- Paolo Zeppini & Koen Frenken & Roland Kupers, 2013.
"Threshold models of technological transitions,"
Eindhoven Center for Innovation Studies (ECIS) working paper series
13-06, Eindhoven Center for Innovation Studies (ECIS), revised Aug 2013.
- Sorin Solomon & Natasa Golo, 2014.
"Minsky Financial Instability, Interscale Feedback, Percolation and Marshall-Walras Disequilibrium,"
- Solomon Sorin & Golo Natasa, 2013. "Minsky Financial Instability, Interscale Feedback, Percolation and Marshall–Walras Disequilibrium," Accounting, Economics, and Law, De Gruyter, vol. 3(3), pages 167-260, October.
- Sorin Solomon & Natasa Golo, 2013. "Minsky Financial Instability, Interscale Feedback, Percolation and Marshall-Walras Disequilibrium," INET Research Notes 39, Institute for New Economic Thinking (INET).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carolina Castaldi).
If references are entirely missing, you can add them using this form.