FORMALISING THE DEMAND FOR TECHNOLOGICAL INNOVATIONS: RATIONAL HERDS, MARKET FRICTIONS AND NETWORK EFFECTS

Francisco J. Santos-Arteaga, Debora Di Caprio, Madjid Tavana and Aidan O'Connor ()
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Francisco J. Santos-Arteaga: School of Economics and Management, Free University of Bolzano, Bolzano, Italy2Instituto Complutense de Estudios Internacionales, Universidad Complutense de Madrid, Spain
Debora Di Caprio: Department of Mathematics and Statistics, York University, Canada4Polo Tecnologico IISS G. Galilei, Italy
Madjid Tavana: Business Systems and Analytics Department, Distinguished Chair of Business Systems & Analytics, La Salle University, Philadelphia, PA 19141, USA6Business Information Systems Department, Faculty of Business Administration and Economics, University of Paderborn, D-33098 Paderborn, Germany
Aidan O'Connor: Département de Management, Systèmes et Stratégie, Ecole Supérieure de Commerce Et Management, France

International Journal of Innovation Management (ijim), 2017, vol. 21, issue 02, 1-43

Abstract: The current paper presents a theoretical model where rational decision makers (DMs) observe credible signals regarding the existence of technologically superior products and generate the demand structure determining their evolution within the market. We will illustrate how consumers may stick to an inferior product when market frictions or their own expectations dictate them to do so. This will be the case even if the newcomer firm credibly guarantees an improvement upon the main characteristics of the incumbent product. Indeed, the prevalence of a suboptimal technology can be the result of the correct choice being made at a given point in time. Moreover, we will compute the expected prevalence of a given product in the market when information regarding the existence of a technologically superior product spreads across consumers following different diffusion processes. The consequences derived from the existence of path dependence phenomena will be analysed from a dynamic perspective by explicitly accounting for the emergence of network effects that may take place after firms signal the availability of a technologically superior set of products.

Keywords: Technology demand; technological evolution; credible signals; search frictions; network effects (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S1363919617500189

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