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Quality Risk Aversion, Conjectures, and New Product Diffusion

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  • Francesco Bogliacino

    ()
    (Departamento de Economia, Universidad EAFIT)

  • Giorgio Rampa

    (Department of Economics and Quantitative Methods, University of Pavia)

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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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q092.pdf
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Bibliographic Info

Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 092.

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Length: 34 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:pav:wpaper:092

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Related research

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

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References

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  16. Bogliacino, F & Rampa, G, 2009. "Monopolistic Competition and New Products: A Conjectural Equilibrium Approach," MPRA Paper 15120, University Library of Munich, Germany.
  17. Cowan,Robin & Jonard,Nicolas, 2000. "The Dynamics of Collective Invention," Research Memorandum 018, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
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  22. Cowan,Robin & Jonard,Nicolas, 2000. "The Dynamics of Collective Invention," Research Memorandum 018, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  23. 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.
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Cited by:
  1. 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.
  2. Bogliacino, F & Rampa, G, 2009. "Monopolistic Competition and New Products: A Conjectural Equilibrium Approach," MPRA Paper 15120, University Library of Munich, Germany.

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