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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues
Mar 1, 2015

Multi-Market, Multi-Product New Product Diffusion: Decomposing Local, Foreign, and Indirect (Cross-Product) Effects


In this study, we address an important issue largely ignored in existing diffusion research—the simultaneous diffusion of related (here, complementary) products across multiple interacting countries. In doing so, we demonstrate that incorporating prior diffusion of complementary products in an international framework leads to an enhanced substantive understanding of the evolution of cross-country diffusion. The limited prior research on cross-product interactions has focused exclusively on a single country. We extend this research by building a more complete view of the role that prior diffusion of two interacting technologies play both within as well as across countries. Specifically, we decompose—on a country-by-country basis—the impact of three factors on the diffusion of any product: (a) prior diffusion of the product within each country, (b) prior diffusion of the same product in other counties, and (c) prior diffusion of a related product. This decomposition leads to a number of important strategic insights. We estimate and graph the three effects over time for each product and country using a comprehensive data set that covers the diffusion of PCs and the Internet over two decades—from 1981 to 2009—and across 19 countries. There are a number of interesting findings. First, we find that home PC diffusion was driven predominantly by local effects—the more individuals saw the penetration of home PCs grow locally, the greater the likelihood of adoption. Second, we find very different effects for the Internet—Internet adoption was driven by a combination of influences: (a) local network effects, (b) foreign network effects, and (c) cross-product effects. These results suggest that diffusion of one product can facilitate the diffusion of another product and that the impact can be asymmetric across products. When taken in aggregate, these results highlight the importance of incorporating and estimating cross-product effects in a multi-market new product diffusion context—one is able to obtain a more complete view of the impact of strategic decisions within a general diffusion process in markets that develop and evolve dynamically over time.

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