Innovation diffusion with heterogeneous networked agents: a computational model

It is well established that S-shaped curves describe the diffusion processes of many innovations quite well, but little insight on the mechanics of diffusion is achieved by simple curve fitting. We propose an evolutionary model of the diffusion process, focusing on the characteristics of economic agents and on the interactions among them, and relate those determinants with the observed shape of the diffusion curve. Using simulation techniques, we show that the proposed model is able to explain why an innovation may not diffuse globally across an economy/region, even when it faces no rival innovations. Moreover, we show how network size, informational spillovers, and the behavior of innovation prices shape the diffusion process. The results regarding network size and informational spillovers rationalize the importance of informational lock-outs, proving they can influence both the aggregate adoption rate and the speed of the diffusion process. With respect to innovation prices, simulation results show that faster price decline leads to higher aggregate adoption rates, and that the diffusion process is more sensitive to the pricing dynamics than to the network size or the behavior of spillovers. Copyright Springer-Verlag 2012