Price Elasticity of Innovation Diffusion During the Transition Between Technological Generations

A new generation of technology disrupts the diffusion of the earlier generation. Our objectives are: (1) to analyze price elasticity during generational transition via a multi-country, multiple generations model embedding the effects of competitive and environmental covariates; (2) to understand the differential price elasticity and growth rates of segments of second generation adopters with regard to their status as fresh adopters, leapfroggers or upgraders from the previous generation. Our data set describes the adoption of two generations of cellular telephones for 70 countries with a wide coverage of economic sectors and geographic regions. First generation price elasticity decreases gradually, then as the second generation is introduced we find first generation price elasticity drops briefly then rises sharply to a peak then decreases. Meantime second generation price elasticity decreases faster than the first generation at a comparable stage. The fastest adopters of the second generation were those fresh to it; those upgrading from first to second generation were the next fastest. Within the second generation, the price elasticity of upgraders is consistently lower than that for new adopters and leapfroggers. First generation adoption was the third fastest process; the late adopters of the first generation who decide to adopt second generation instead, the leapfroggers, were the slowest. The clear implication is that different marketing approaches should be taken for each group