DiffusionmodelsEpidemicmodelsofdiffusion(e.g.Bass,1969)Analysisofspreadofdiseases·Assumption:DiffusionresultsfromthespreadofinformationEconomic(Rank)ModelofDiffusionEffectsofpricesand/orcostsondecisionDifferencesbetween individuals(consumergoods)andfirms (intermediate inputs)Differentassumptions:Informationsearchcosts,differences in households and firms (e.g.income/capitalstock)Technische UniversiteitTUEindhoven-UniversityofTechnology10/3/2013PAGE5EconomicsofInnovation2013
Diffusion models • Epidemic models of diffusion (e.g. Bass, 1969): Analysis of spread of diseases • Assumption: Diffusion results from the spread of information • Economic (Rank) Model of Diffusion • Effects of prices and/or costs on decision • Differences between individuals (consumer goods) and firms (intermediate inputs) • Different assumptions: Information search costs, differences in households and firms (e.g. income/capital stock) Economics of Innovation 2013 10/3/2013 PAGE 5
Epidemicmodels(e.g.Bass,1969)m, / n=1/(1+exp-(α+βt))e.g.examining spreadingVariables:van diseasesmt-usersattimetModel:n-non-usersα -constantof integration(e.g. contact)0000β-constantofinfection000999555000560000565000570000575000TechnischeUniversiteitTUEindhovenJUniversity of Technology10/3/2013PAGE6EconomicsofInnovation2013
Epidemic models (e.g. Bass, 1969) Variables: mt – users at time t n – non-users α - constant of integration (e.g. contact) β – constant of infection Economics of Innovation 2013 10/3/2013 PAGE 6 / 1/(1 exp ( )) t m n t e.g. examining spreading van diseases Model:
Epidemic models:Adoption curve100%S- ShapedDiffusion CurveRateofadoptioneInflectionpointAfterachieving criticalmass, growthCritical Massbecomesself-sustained0Technische UniversiteittimeTUEindhoveneUniversity of Technology10/3/2013PAGE7EconomicsofInnovation2013
Epidemic models: Adoption curve Economics of Innovation 2013 10/3/2013 PAGE 7 100% 0 time Critical Mass Inflection point S- Shaped Diffusion Curve After achieving critical mass, growth becomes selfsustained Percentage of Adoption Rate of adoption
AssumptionsofepidemicmodelsineconomicsPopulationof potentialadoptershomogeneousandconstantovertimeNatureoftechnologyisnotchangingovertime·Profitability of adoption may change along diffusionpathIgnoreexternalinformationsourcesEndlevel ofuseofthenewtechnologyDemandsidemodels(noeffectsofsupplyside)>>>supply-sideextensionsTechnischeUniversiteitTUEindhovenUniversityofTechnologyPAGE8EconomicsofInnovation201310/3/2013
Assumptions of epidemic models in economics • Population of potential adopters homogeneous and constant over time • Nature of technology is not changing over time • Profitability of adoption may change along diffusion path • Ignore external information sources • End level of use of the new technology • Demand side models (no effects of supply side) >>> supply-side extensions Economics of Innovation 2013 10/3/2013 PAGE 8
Epidemic models:ExampleDigitalizationLeaders: Sweden, GBDigitalizationof Telephone Network in someEULaggards: CzechCountries(1980-2008)Republic and Hungary100HighGrowthRates in90the1990sforlaggards8070CZE60WhatdeterminesHUN50differentgrowthrates?SWE40GBR30EU212010198019821984198619881990199219941996199820002002200420062008Data:ITU2010TechnischeUniversiteitTUEindhovenUniversityof TechnologyPAGE9EconomicsofInnovation201310/3/2013
Epidemic models: Example Digitalization Economics of Innovation 2013 10/3/2013 PAGE 9 Leaders: Sweden, GB Laggards: Czech Republic and Hungary High Growth Rates in the 1990s for laggards What determines different growth rates? Data: ITU 2010