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 di...

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Bibliographic Details
Published in:Journal of evolutionary economics 2012-11, Vol.22 (5), p.1081-1115
Main Authors: Bogliacino, Francesco, Rampa, Giorgio
Format: Article
Language:English
Subjects:
Attitudes
Consumer behavior
Consumers
Demand curves
Diffusion
Economic equilibrium
Economic Growth
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Entrepreneurship
Equilibrium
Innovation diffusion
Innovations
Institutional/Evolutionary Economics
Learning
Microeconomics
New products
Product acceptance
Product quality
R & D/Technology Policy
Regular Article
Risk aversion
Studies
Welfare economics
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Summary: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 steady states of the learning dynamics, with regard to the multiplicity and the local stability of equilibria, and to their welfare properties.
ISSN:0936-9937
1432-1386
DOI:10.1007/s00191-011-0255-z