Quality Risk Aversion, Conjectures, and New Product Diffusion

34 Pages Posted: 24 May 2008

See all articles by Francesco Bogliacino

Francesco Bogliacino

National University of Colombia - Department of Economics

Giorgio Rampa

University of Pavia

Date Written: April 23, 2008

Abstract

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 asymptotic behavior of the learning dynamics, with regard to the multiplicity and the stability of equilibria, and to their welfare properties.

Keywords: Heterogeneity, Multiple equilibria, Lock-in, Product diffusion, Risk Aversion

JEL Classification: L15, D81, O33

Suggested Citation

Bogliacino, Francesco and Rampa, Giorgio, Quality Risk Aversion, Conjectures, and New Product Diffusion (April 23, 2008). Available at SSRN: https://ssrn.com/abstract=1136922 or http://dx.doi.org/10.2139/ssrn.1136922

Francesco Bogliacino (Contact Author)

National University of Colombia - Department of Economics ( email )

Carrera 30 Calle 45 Ciudad Universitaria
Bogotá
Colombia

Giorgio Rampa

University of Pavia ( email )

via San Felice, 5
Pavia, 27100
Italy

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