PercolationBased Model of NewProduct Diffusion with Macroscopic Feedback Effects.pdfVIP

3 0 0 A Percolation-Based Model of New-Product Diffusion with 2 Macroscopic Feedback Effects g u A 8 1 Martin Hohnisch, Sabine Pittnauer and Dietrich Stauffer∗ ] h c e m - t a t s . t a m - d n Abstract o c This paper proposes a percolation-based model of new-product diffusion in the spirit of [ Solomon et al. (2000) and Goldenberg et al. (2000). A consumer buys the new product 1 v if she has formed her individual valuation of the product (reservation price) and if this 8 5 valuation is greater or equal than the price of the product announced by the firm in a given 3 8 period. Our model differs from previous percolation-based models of new-product diffusion 0 in two respects. First, we consider macroscopic feedback effects affecting the supply or the 3 0 demand side of the market (or both). Second, a consumer who did not buy the product / t in the period in which her valuation was formed remains a potential buyer and buys in a m some later period if and when her individual valuation equals or exceeds the price of the - d product. Unlike most previous models of new-product diffusion, our framework accounts n o for the empirical finding of long tails characteristic for early stages of innovation diffusion. c : v i X Keywords: Social Percolation, Innovation Diffusion, New-Product Diffusion r a ∗Address: Hohnisch: Research Group Hildenbrand, Department of Economics, University of Bonn, Lenn´estr. 37, 53113 Bonn, Germany and Research Center BiBoS, University of Bielefeld, D- 33501 Bielef