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

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  1. Mukoyama, Toshihiko, 2006. "Rosenberg's "learning by using" and technology diffusion," Journal of Economic Behavior & Organization, Elsevier, vol. 61(1), pages 123-144, September.
  2. AUMANN, Robert J. & DREZE, Jacques H., . "Rational expectations in games," CORE Discussion Papers RP -2011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  11. Aoki, Masanao & Yoshikawa, Hiroshi, 2002. "Demand saturation-creation and economic growth," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 127-154, June.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
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  17. Teck-Hua Ho & Sergei Savin & Christian Terwiesch, 2002. "Managing Demand and Sales Dynamics in New Product Diffusion Under Supply Constraint," Management Science, INFORMS, vol. 48(2), pages 187-206, February.
  18. Vijay Mahajan & Robert A. Peterson, 1978. "Innovation Diffusion in a Dynamic Potential Adopter Population," Management Science, INFORMS, vol. 24(15), pages 1589-1597, November.
  19. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  20. 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.
  21. Malerba, Franco, 2007. "Innovation and the dynamics and evolution of industries: Progress and challenges," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 675-699, August.
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Cited by:
  1. 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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