Market Diffusion with Consumer-Based Bilateral Learning
Kyoto Sangyo University
September 5, 2011
Studies in Applied Economics, Vol. 5, pp 1-20, December 2011
This paper analyzes the market diffusion of a new product whose quality is uncertain. Consumers learn the product quality by observing the history of market outcomes. Firms cannot observe how consumers evaluate the product quality; instead, they learn by observing consumer behavior. New entry occurs gradually because of informational externalities. This dual uncertainty contributes to an S-shaped diffusion of the new product with declining prices.
Number of Pages in PDF File: 26
Keywords: Experience Goods, Quality Uncertainty, Bilateral Learning, S-shaped Diffusion
JEL Classification: D11, L11, L14
Date posted: May 13, 2009 ; Last revised: February 4, 2013
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