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2016 | 129 | 5 | 1045-1049
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Impact of Social Interactions on Demand Curves for Innovative Products

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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.
  • Department of Operations Research, Wrocław University of Technology, Wrocław, Poland
  • Department of Operations Research, Wrocław University of Technology, Wrocław, Poland
  • Department of Operations Research, Wrocław University of Technology, Wrocław, Poland
  • Department of Operations Research, Wrocław University of Technology, Wrocław, Poland
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