Quality Risk Aversion, Conjectures, and New Product Diffusion
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.
|Date of creation:||Jan 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Via S. Felice, 5 - 27100 Pavia|
Web page: http://dipartimenti.unipv.eu/on-dip/epmq/Home.html
More information through EDIRC
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.:
- Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
- John H. Roberts & Glen L. Urban, 1988. "Modeling Multiattribute Utility, Risk, and Belief Dynamics for New Consumer Durable Brand Choice," Management Science, INFORMS, vol. 34(2), pages 167-185, February.
- Gershon Feder & Gerald T. O'Mara, 1982. "On Information and Innovation Diffusion: A Bayesian Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 64(1), pages 145-147.
- Banerjee, Abhijit & Fudenberg, Drew, 2004.
Games and Economic Behavior,
Elsevier, vol. 46(1), pages 1-22, January.
- 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.
- Francesco Bogliacino & Giorgio Rampa, 2010.
"Monopolistic competition and new products: a conjectural equilibrium approach,"
Journal of Economic Interaction and Coordination,
Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 5(1), pages 55-76, June.
- Bogliacino, F & Rampa, G, 2009. "Monopolistic Competition and New Products: A Conjectural Equilibrium Approach," MPRA Paper 15120, University Library of Munich, Germany.
- 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.
- Mukoyama, Toshihiko, 2006.
"Rosenberg's "learning by using" and technology diffusion,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 61(1), pages 123-144, September.
- MUKOYAMA, Toshihiko, 2005. "Rosenberg's "Learning by Using" and Technology Diffusion," Cahiers de recherche 21-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Toshihiko Mukoyama, 2004. "Rosenberg's "Learning by Using" and Technology Diffusion," Working Papers 05003, Concordia University, Department of Economics.
- Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
- 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.
- 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.
- Dirk Bergemann & Juuso Valimaki, 1996.
"Market Diffusion with Two-Sided Learning,"
Cowles Foundation Discussion Papers
1138, Cowles Foundation for Research in Economics, Yale University.
- Aoki, Masanao & Yoshikawa, Hiroshi, 2002. "Demand saturation-creation and economic growth," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 127-154, June.
- Verbrugge, Randal, 2000. "Risk aversion, learning spillovers, and path-dependent economic growth," Economics Letters, Elsevier, vol. 68(2), pages 197-202, August.
- 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.
- Matthew O. Jackson & Leeat Yariv, 2007.
"Diffusion of Behavior and Equilibrium Properties in Network Games,"
American Economic Review,
American Economic Association, vol. 97(2), pages 92-98, May.
- Jackson, Matthew O. & Yariv, Leeat, 2006. "Diffusion of Behavior and Equilibrium Properties in Network Games," Working Papers 1264, California Institute of Technology, Division of the Humanities and Social Sciences.
- Geroski, P. A., 2000.
"Models of technology diffusion,"
Elsevier, vol. 29(4-5), pages 603-625, April.
- 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).
- H. Peyton Young, 2009. "Innovation Diffusion in Heterogeneous Populations: Contagion, Social Influence, and Social Learning," American Economic Review, American Economic Association, vol. 99(5), pages 1899-1924, December.
- Vijay Mahajan & Robert A. Peterson, 1978. "Innovation Diffusion in a Dynamic Potential Adopter Population," Management Science, INFORMS, vol. 24(15), pages 1589-1597, November.
- Jensen, Richard, 1982. "Adoption and diffusion of an innovation of uncertain profitability," Journal of Economic Theory, Elsevier, vol. 27(1), pages 182-193, June.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pav:wpaper:092. 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: (Paolo Bonomolo)
If references are entirely missing, you can add them using this form.