Diffusion Dynamics and the Pricing of Innovations

University dissertation from Fredrik Link, Clemenstorget 6, S-222 21 Lund, Sweden

Abstract: This doctoral thesis deals with two closely interconnected phenomena, the adoption and diffusion of innovations. The research aims at developing both the theory of individual adoption decisions and the theory of the diffusion of an innovation in society. Especially how the pricing of an innovation tends to influence adoption and diffusion is focused. Two empirical studies within the telecommunication product domain are presented. The first study is a test of the prevailing theory, which prescribes a high willingness to pay by the most innovative adopters. This view is complemented by two additional adoption behavior determinants known from pricing theory, the use of price as a quality signal and the use of reference prices in the evaluation of innovations. Based on findings contradicting the prevailing theory, the second study explores the causes behind the market "take-off" phenomenon. Beyond the traditional view of communicated experiences, are also explored the effects of changes in perceived value, network externalities, and technological "lock-in." The findings of the second part of the thesis indicate that the causes of the "take-off" phenomenon can be found in the formation of conditional adoption decisions, especially by the most innovative potential adopters. The statistical analyses and theory tests in both parts of the thesis are conducted by use of structural equation modeling in LISREL.

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