Determining adoption pattern with pricing using two-dimensional innovation diffusion model

Abstract

Studying the dynamics of the technology diffusions under the key determinants that influence the adoption of a technology across time and/or space into the market is crucial to assess the business case for new technologies. The topic diffusion has been widely studied by researchers from different disciplines, including Sociology, Economics, Psychology and Marketing. However a substantial amount of research has been focused on one dimension: either to examine the individual's adoption of an innovation or to explain the time path of adoption of technologies typically follows an S-shaped curve. The other dimensions of the diffusion of an innovation, has gained less attention. In this paper, we derive a two-dimensional technology diffusion innovation model which combines the adoption time of technological diffusion and price of the technology product. In the proposed model technological adoptions and the role of other dimensions are explicitly taken into consideration by using the classical Cobb–Douglas production function. The model is based on two main assumptions: the rate of adoption growth decreases in price and that there is diminishing returns to time because initial market size is fixed. The proposed model is also validated on a number of datasets and compared with established models. The empirical analysis shows that the model performs better than other one-dimensional diffusion model in terms of parameter estimation and model validity.