Impact of Social Interactions on Demand Curves for Innovative Products
Authored by K Maciejowska, A Jedrzejewski, A Kowalska-Pyzalska, R Weron
Date Published: 2016
DOI: 10.12693/aphyspola.129.1045
Sponsors:
National Science Centre (NCN)
Platforms:
No platforms listed
Model Documentation:
Other Narrative
Model Code URLs:
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Abstract
Empirical studies suggest that word-of-mouth strongly influences the
innovation diffusion process and is responsible for the ``S{''} shape of
the adoption curve. However, it is not clear how word-of-mouth 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 word-of-mouth 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 word-of-mouth may have ambiguous consequences and
should be taken into account when designing marketing strategies.
Tags
Word-of-mouth
diffusion
Model
percolation