A percolation model of multi-technology diffusion: information feedbacks, learning economies and subsidy policy

Simona Cantono

Department of Economics and Statistics Cognetti de Martiis. Working Papers from University of Turin

Abstract: This paper deals with the diffusion of innovations in a multi-technology setting. High up-front costs of adoption, heterogeneity among potential adopters, network interactions, information feedbacks and subsidy policies are reproduced by an agent-based percolation model of multi-technology diffusion. In our model a new technology incorporated in a final product ready to be commercialized may spread in a market of heterogeneous consumers who decide whether to adopt it or not depending on both the net benefit from adoption and on locally available information. A new desirable technology, characterized by a high up-front cost of adoption, may not be able to overcome the obstacles to its diffusion despite potential future cost reductions. It may fail to spread in the market because of the pressure from its competitors (i.e. other technologies that serve a similar function) or because heterogeneity among potential adopters confine the spread of useful information to isolated sub-communities. We ask if a subsidy policy would trigger a self-sustained diffusion of a desirable technology. We run the model in two specific network topologies: bidimensional regular lattice and small world network. We show that a) information feedbacks and learning economies give raise to a positive feedback loop almost independently on the topology of the network: more information feedbacks ® decrease in price ® higher probability of conquering potential adopters ® more information feedbacks etc; b) market dominance depends on the probability of the initial adopters to belong to an expanding cluster which is a function of both the network topology and heterogeneity of potential adopters; c) in a multi-technology setting a subsidy policy should be set not only according to future costs reduction and heterogeneity but also to competition and technologies interdependence: reaching the necessary critical mass of diffusion may depend on how successfully the overall spread of other undesirable technologies is prevented

Pages: 19 pages
Date: 2012-04
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Citations: View citations in EconPapers (2)

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