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Impact of social interactions on demand curves for innovative products

Author

Listed:
  • Katarzyna Maciejowska
  • Arkadiusz Jedrzejewski
  • Anna Kowalska-Pyzalska
  • Rafal Weron

Abstract

Empirical studies suggest that word-of-mouth (WOM) strongly influences the innovation diffusion process and is responsible for the 'S' shape of the adoption curve. However, it is not clear how WOM affects demand curves for innovative products and strategic decisions of producers. Using an agent-based model of innovation diffusion, which links consumer opinions with reservation prices, we show that a relatively strong WOM effect can lead to the creation of two separated price-quantity regimes, with a nonlinear transition between them. A small shift of the product's market price can result in a drastic change of the demanded quantity and, hence, the revenues of a firm. Using Monte Carlo simulations and mean-field treatment we demonstrate that WOM may have ambiguous consequences and should be taken into account when designing marketing strategies.

Suggested Citation

  • Katarzyna Maciejowska & Arkadiusz Jedrzejewski & Anna Kowalska-Pyzalska & Rafal Weron, 2016. "Impact of social interactions on demand curves for innovative products," HSC Research Reports HSC/16/04, Hugo Steinhaus Center, Wroclaw University of Technology.
  • Handle: RePEc:wuu:wpaper:hsc1604
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    File URL: http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_16_04.pdf
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    References listed on IDEAS

    as
    1. Anna, Petrenko, 2016. "Мaркування готової продукції як складова частина інформаційного забезпечення маркетингової діяльності підприємств овочепродуктового підкомплексу," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 2(1), March.
    2. Paolo Zeppini & Koen Frenken, 2015. "Networks, Percolation, and Demand," Department of Economics Working Papers 38/15, University of Bath, Department of Economics.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Paul R. Nail & Katarzyna Sznajd-Weron, 2016. "The diamond model of social response within an agent-based approach," HSC Research Reports HSC/16/02, Hugo Steinhaus Center, Wroclaw University of Technology.

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    More about this item

    Keywords

    Word-of-mouth; Innovation diffusion; Agent-based model; Demand curve; Marketing strategy;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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