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On the Bass diffusion theory, empirical models and out-of-sample forecasting

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  • Franses, Ph.H.B.F.

Abstract

The Bass (1969) diffusion theory often guides the construction of forecasting models for new product diffusion. To match the model with data, one needs to put forward a statistical model. This paper compares four empirical versions of the model, where two of these explicitly incorporate autoregressive dynamics. Next, it is shown that some of the regression models imply multi-step ahead forecasts that are biased. Therefore, one better relies on the simulation methods, which are put forward in this paper. An empirical analysis of twelve series (Van den Bulte and Lilien 1997) indicates that one-step ahead forecasts substantially improve by including autoregressive terms and that simulated two-step ahead forecasts are quite accurate.

Suggested Citation

  • Franses, Ph.H.B.F., 2003. "On the Bass diffusion theory, empirical models and out-of-sample forecasting," ERIM Report Series Research in Management ERS-2003-034-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:333
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    References listed on IDEAS

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    1. Boswijk, H. Peter & Franses, Philip Hans, 2005. "On the Econometrics of the Bass Diffusion Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 255-268, July.
    2. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    3. Christophe Van den Bulte & Gary L. Lilien, 1997. "Bias and Systematic Change in the Parameter Estimates of Macro-Level Diffusion Models," Marketing Science, INFORMS, vol. 16(4), pages 338-353.
    4. V. Srinivasan & Charlotte H. Mason, 1986. "Technical Note—Nonlinear Least Squares Estimation of New Product Diffusion Models," Marketing Science, INFORMS, vol. 5(2), pages 169-178.
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    Keywords

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    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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