Models For Diffusion Of Innovations Among Potential Adopters

807 WordsApr 14, 20164 Pages
Models for diffusion of innovations among potential adopters have been recently used to study the life cycle of new products and to forecast first-purchase sales. Those models are useful for managers as decision aids to create and perform strategies to maintain the profitability of new products across their life cycle. Bass (1969) pioneered this area of research with a model for diffusions of new products under peer pressure via word-of-mouth. This model distinguished two parameters: innovation and imitation. Later, Chatterjee and Eliashberg (1990) provided a microeconomic version of Bass’s model that included interactions among potential adopters and the formation of beliefs. In Chatterjee and Eliashberg’s model, potential adopters were risk averse and used the price and their perceptions about the innovation’s performance as inputs for utility functions. Thus, with Bayesian methods, potential adopters updated parameters with information from past adopters. Our model also focuses on informational influence on adoption of new products. However, we modified Chatterjee and Eliashberg’s model of beliefs formation and individual choice by taking into account the possibility that influences take place only among consumers who are connected in a social network. The objective of this article is twofold. First, we seek to determine how global parameters of the social network, such as average path length and clustering, affect diffusion processes. Second, we attempt to identify early
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