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Innovation diffusion in networks: the microeconomics of percolation

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  • Paolo Zeppini

    ()

  • Koen Frenken

    ()

  • Luis R. Izquierdo

Abstract

We 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.

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Bibliographic Info

Paper provided by Eindhoven Center for Innovation Studies in its series Working Papers with number 13-02.

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Date of creation: Feb 2013
Date of revision: Feb 2013
Handle: RePEc:ein:tuecis:1302

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Keywords: critical transition; demand; learning curves; market efficiency; social networks;

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References

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  1. 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.
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Citations

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Cited by:
  1. Paolo Zeppini & Koen Frenken & Roland Kupers, 2013. "Threshold models of technological transitions," Working Papers 13-06, Eindhoven Center for Innovation Studies, revised Aug 2013.
  2. Sorin Solomon & Natasa Golo, 2014. "Minsky Financial Instability, Interscale Feedback, Percolation and Marshall-Walras Disequilibrium," Papers 1402.0176, arXiv.org.
  3. 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).

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