Modeling the Diffusion of System-Effect Technologies

With the emergence of the Internet many products and services have been created that rely and build on the stimulating effect of network externalities. Consequently, the analysis of these types of technologies and their specific characteristics has also gained in importance, especially regarding the forecasting of their diffusion.

Philipp Bell develops a mathematical diffusion model for system-effect technologies building on the specific prerequisites needed for an adequate representation of their unique characteristics. The empirical analysis of ten system-effect technologies compares the performance of existing diffusion models to the new model formulation. Estimation results indicate clearly that descriptive fit and forecasting validity of the new model, numerically as well as graphically, are generally greatly superior to even the most flexible traditional models.