Innovation diffusion in networks: the microeconomics of percolation
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.
|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
References listed on IDEAS
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.:
- Banerjee, Abhijit & Chandrasekhar, Arun G & Duflo, Esther & Jackson, Matthew O., 2012.
"The Diffusion of Microfinance,"
CEPR Discussion Papers
8770, C.E.P.R. Discussion Papers.
- 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," Working Papers 12-16, New York University, Leonard N. Stern School of Business, Department of Economics.
- Alessandra Fogli & Laura Veldkamp, 2012. "Germs, Social Networks and Growth," NBER Working Papers 18470, National Bureau of Economic Research, Inc.
- Blume Lawrence E., 1995.
"The Statistical Mechanics of Best-Response Strategy Revision,"
Games and Economic Behavior,
Elsevier, vol. 11(2), pages 111-145, November.
- Lawrence Blume, 1993. "The Statistical Mechanics of Best-Response Strategy Revision," Game Theory and Information 9307001, EconWPA, revised 26 Jan 1994.
- López-Pintado, Dunia, 2008.
"Diffusion in complex social networks,"
Games and Economic Behavior,
Elsevier, vol. 62(2), pages 573-590, March.
- 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.
- 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.
- Silverberg, G. & Verspagen, B., 2002.
"A Percolation Model of Innovation in Complex Technology Spaces,"
02.12, Eindhoven Center for Innovation Studies.
- 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.
- 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.
- Cristopher Moore & M. E. J. Newman, 2000. "Epidemics and Percolation in Small-World Networks," Working Papers 00-01-002, Santa Fe Institute.
- William A. Brock & Steven N. Durlauf, 2009.
"Adoption Curves and Social Interactions,"
NBER Working Papers
15065, National Bureau of Economic Research, Inc.
- 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).
- 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;Society for Economic Science with Heterogeneous Interacting Agents, vol. 7(2), pages 145-165, October.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
- Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
- 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.
- 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.
- Argote, L. & Epple, D., 1990. "Learning Curves In Manufacturing," GSIA Working Papers 89-90-02, Carnegie Mellon University, Tepper School of Business.
- Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521674096, June.
- 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.
- Vega-Redondo,Fernando, 2007. "Complex Social Networks," Cambridge Books, Cambridge University Press, number 9780521857406, June.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ein:tuecis:1302. See general information about how to correct material in RePEc.
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.