Impact of Social Interactions on Demand Curves for Innovative Products
K. Maciejowska, A. Jędrzejewski, A. Kowalska-Pyzalska and R. Weron
Department of Operations Research, Wrocław University of Technology, Wrocław, Poland
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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.

DOI: 10.12693/APhysPolA.129.1045
PACS numbers: 89.65.Gh, 87.23.Ge