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A New Product Adoption Model with Price, Advertising, and Uncertainty
Abstract
This paper introduces a framework for modeling innovation diffusion that includes price and advertising. The adoption of a new product is characterized by two steps: awareness and adoption. Awareness is the stage of being informed about the product search attributes. The process of becoming aware is modeled as a simple “epidemic” type model, where the information is spread by advertising and word of mouth. The second step, adoption, is conditional on awareness, and it occurs if the perceived risk adjusted value of the product exceeds its selling price. The population is heterogeneous with respect to valuation of the product. Individuals are risk averse, and therefore are willing to pay more for the product, on the average, as information from early adopters reduces uncertainty about the product. Optimal control of the diffusion process by pricing and advertising over time is analyzed, and a comparative estimation of the model in one application is reported.
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Citations
Cited by
Social contagion and income heterogeneity in new product diffusion: A meta-analytic test
Van den Bulte, C., & Stremersch, S. (2004) · Marketing Science · doi:10.1287/mksc.1040.0054 · Cited by 434
Effects of Freemium Strategy in the Mobile App Market: An Empirical Study of Google Play
Liu, C. Z., Au, Y. A., & Choi, H. S. (2014) · Journal of Management Information Systems · doi:10.1080/07421222.2014.995564 · Cited by 274
Clearance Pricing and Inventory Policies for Retail Chains
Smith, S. A., & Achabal, D. D. (1998) · Management Science · doi:10.1287/mnsc.44.3.285 · Cited by 214
Economics of Free Under Perpetual Licensing: Implications for the Software Industry
Niculescu, M. F., & Wu, D. J. (2014) · Information Systems Research · doi:10.1287/isre.2013.0508 · Cited by 151
Online Product Reviews-Triggered Dynamic Pricing: Theory and Evidence
Feng, J., Li, X., & Zhang, X. (. (2019) · Information Systems Research · doi:10.1287/isre.2019.0852 · Cited by 117
Metadata
- Authors
- Kalish, S.
- Venue
- Management Science
- Published
- 1985-12
- Volume
- 31
- Issue
- 12
- Pages
- 1569-1585
- ISSN
- 0025-1909 (ISSN-L)
- 1526-5501
- OpenAlex
- W2107140526
- Cited by
- 516
- References
- 0
- FWCI
- 7.71
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
