5.1 Diffusion and Innovation

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Questions and Answers

According to the Bass model, what is the primary driver of diffusion early in the process?

Economic incentives

Interpersonal communication

Mass media (correct)

Government regulations

What does the Bass model suggest becomes more influential as time passes in the diffusion process?

Interpersonal communications (correct)

Government subsidies

Technological advancements

Mass advertising campaigns

In the context of technology adoption, what is a 'flow benefit'?

A benefit that is only available for a short period of time

A one-time payment received when adopting a new technology

Benefits received continuously over the life of the technology (correct)

A benefit that is specific to a particular industry

What is the primary focus of technology policy specialists regarding the diffusion of new technologies?

Encouraging adoption for welfare-enhancing or public policy goals Signup and view all the answers

What is a crucial factor in understanding the variation in technology diffusion across different countries?

Institutional and cultural variables Signup and view all the answers

When considering the decision to adopt a new technology, the choice is best understood as:

A choice between adopting now or deferring the decision Signup and view all the answers

In the context of the Bass model, what has empirical research revealed about the relative roles of interpersonal communication and media in diffusion?

Interpersonal communication plays a much bigger role than the media. Signup and view all the answers

What perspective on diffusion is characteristic of both the marketing literature and technology policy specialists?

An activist view of diffusion. Signup and view all the answers

According to Figure 2, approximately what percentage of manufacturing horsepower was attributed to electricity in 1930?

About 55% Signup and view all the answers

Based on the graphs, which technology achieved the closest to 100% market saturation?

Electric Service Signup and view all the answers

In Figure 2, around what year did the share of electric horsepower in manufacturing surpass 50%?

1930 Signup and view all the answers

According to the graphs, which of these innovations saw the most rapid increase in market share between 1920 and 1940?

Refrigerator Signup and view all the answers

Which technology, according to the graphs, shows a consistently steep upward trajectory almost until the end of the time period?

Electric Service Signup and view all the answers

Based on the information given, what is the main subject of the 'QWERTY controversy'?

The dominance of a suboptimal keyboard layout Signup and view all the answers

What is the primary reason that adoption of a new technology is typically considered an absorbing state?

The initial adoption costs are 'sunk' and cannot be recovered, making it uneconomical to revert to the old technology. Signup and view all the answers

According to Box 1, in what decade was Paul David's influential study on the QWERTY keyboard layout published?

The 1980s Signup and view all the answers

Why might the adoption of a new technology be delayed?

There is an 'option value' in waiting due to uncertainty about the benefits of the new technology. Signup and view all the answers

According to the information provided, what was the main finding regarding Dvorak keyboards?

They were faster for trained typists than QWERTY keyboards Signup and view all the answers

Which of the following best describes the concept of 'sunk costs' in the context of technology adoption?

Costs that are irrelevant after the new technology has been adopted. Signup and view all the answers

What is the primary difference between innovations in 'practice' and 'physical product' innovations according to the text?

Practice innovations are more likely to be abandoned compared to physical product innovations. Signup and view all the answers

Which of the following situations best illustrates why a new technology adoption decision is not always an absorbing state?

A company invests in a new website design but reverts back to the old model after only a year. Signup and view all the answers

When is the 'ceiling' of adoption expected to be less than 100% of the potential user base?

The text does not directly specify conditions for a ceiling less than 100%. Signup and view all the answers

Why does the characteristic of 'sunk costs' play a crucial role in technology adoption?

They make the initial adoption investment seem irrelevant and unrecoverable after the fact. Signup and view all the answers

What is the approximate adoption percentage at the inflection point mentioned for a logit distribution?

Around 20% Signup and view all the answers

According to the provided text, what is an 'option', in the context of technology adoption?

A choice between doing nothing and paying a fixed amount to potentially obtain an uncertain benefit. Signup and view all the answers

What shape do the diffusion curves of new inventions, across time, typically follow according to the text?

An S-shaped pattern. Signup and view all the answers

Which statement best explains why the text brings up the hula hoop craze and fad diets?

They are rare exceptions to the rule where a new practice is abandoned after initially being adopted. Signup and view all the answers

What does the text suggest about the typical length of time for an innovation to diffuse significantly?

The time to reach similar levels of penetration can differ greatly between inventions. Signup and view all the answers

Which of the following is NOT listed as one of the main groups influencing the diffusion of innovations?

Factors relating to initial product launch timing. Signup and view all the answers

What significant conclusion can be made from the analysis of diffusion rates for different products in Japan between 1989 and 1995?

Diffusion rates can vary considerably despite similar market conditions and product type. Signup and view all the answers

What measure does Golder and Tellis (1997) use in their non-parametric discrete version of determining the inflection point?

The current rate of adoption as a share of adoption to date. Signup and view all the answers

Based on the text, what is a key reason why some innovations take much longer to diffuse than others?

Innovations have inherent characteristics that lead to different adoption rates. Signup and view all the answers

Which product saw the highest percentage increase in diffusion between 1989 and 1995?

CD/radio/cassette player Signup and view all the answers

What was the diffusion percentage of personal computers in 1995?

16.6% Signup and view all the answers

Which appliance had the highest diffusion percentage in 1989?

Television Signup and view all the answers

Which product had the smallest increase in its diffusion percentage from 1989 to 1995?

Refrigerator Signup and view all the answers

What was the diffusion percentage of cordless phones in 1995?

43.7% Signup and view all the answers

What phenomenon leads to a positive feedback loop from the installed base to consumer adoption?

Network externalities Signup and view all the answers

What issue can arise when there are multiple possible standards and small early events favoring one?

Adoption of an inferior standard Signup and view all the answers

Which researchers added heterogeneity in consumer tastes to the models of diffusion?

Bassanini and Dosi Signup and view all the answers

What do Katz and Shapiro's studies primarily focus on in competitive markets?

Strategic interactions among firms Signup and view all the answers

In what way can the speed of diffusion be affected in the presence of network externalities?

Either too fast or too slow diffusion Signup and view all the answers

What do the theories discussed in the literature emphasize regarding competing firms?

Multiple possible equilibria among firms Signup and view all the answers

What type of goods primarily exhibit properties leading to network externalities, as described by Shapiro and Varian?

Information goods Signup and view all the answers

What can be a consequence of losing standards battles in markets influenced by network externalities?

Business failure Signup and view all the answers

Study Notes

Innovation and Diffusion

Innovation and new technologies contribute substantially to economic growth and welfare.
The rate and manner of diffusion of innovations significantly impacts their economic and social impact.
Diffusion is a neglected area in the economics of innovation.
This study provides comparative and historical perspectives on diffusion, examining economic, social, and institutional determinants.

Conceptual Frameworks

Diffusion of innovations studied from various perspectives (historical, sociological, economic, network).
Rogers' Diffusion of Innovations (4th edition) provides a framework, classifying adoption by: relative advantage, compatibility, complexity, trialability, and observability.
Other attributes influencing diffusion include: decision-making processes, communication channels, social environment, and agency promotion efforts.

Costs of Adopting New Technology

Costs encompass acquisition price and complementary investments (training, equipment).
Sunk costs (costs not recoverable after adoption) influence adoption decisions.
Adjusting operations or work processes may be costly, delaying adoption.
Investment decisions in new technologies are influenced by financial factors and uncertain environments.

Information and Uncertainty

Adopting new technologies requires information about their existence and applicability.
Advertising and experiences of others influence adoption decisions.
Geographical proximity and interactions with others influence knowledge/adoption.
Uncertainty and costs affect adoption rate (option value of waiting).

Market Size, Industry Environment, and Market Structure

Large dominant firms may adopt innovations sooner.
Market size and structure influence technology adoption.
Adoption behavior differs across industries.

Cultural attitudes and norms influence rates of technology adoption.
Religious beliefs and social values play a role in shaping adoption decisions.
Variability in adoption rates among developing countries can be associated with these factors.

Modeling Diffusion

S-shaped adoption curves generally characterize diffusion.
Adoption patterns are influenced by consumer heterogeneity or learning.
Models can incorporate either diffusion or epidemic models (learning or network).
Option value of waiting for adoption affects decision time.

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Description

Explore the principles of the Bass model and its implications for technology adoption and diffusion. This quiz covers key concepts like flow benefits, the influence of communication, and factors affecting technology diffusion in different countries. Challenge your understanding of technology policy and historical context.