APPENDIX X. USING IMPLEMENTATION CURVES TO ESTIMATE MARKET

PENETRATION OF NON-REGULATORY POLICIES

TABLE OF CONTENTS

X.1 Penetration of Non-Regulatory Policies ................................... X-l

LIST OF FIGURES

Figure X.1.1 Comparison of Exponential and Logistic Curves Showing External and

Internal Influences on Consumers .................................. X-2

 EE-RM/STD-01-350 COMMENT 164

APPENDIX X. USING IMPLEMENTATION CURVES TO ESTIMATE MARKET 

PENETRATION OF NON-REGULATORY POLICIES 

TABLE OF CONTENTS 

X.l Penetration of Non-Regulatory Policies ...... .. ........ . . . ................ X-I 

LIST OF FIGURES 

Figure X.l.l Comparison of Exponential and Logistic Curves Showing External and 

Internal Influences on Consumers .......................... . ....... X-2 

X-i 
APPENDIX X. USING IMPLEMENTATION CURVES TO ESTIMATE MARKET

PENETRATION OF NON-REGULATORY POLICIES

X.1 Penetration of Non-Regulatory Policies

There is extensive economic literature on the diffusion process of new products as

technologies evolve. Some of the literature focuses primarily on the development of analytical

models of diffusion patterns of new products for individual consumers or for technologies from

competing firms.' 2, 3, 4 One study records researchers' attempts to investigate underlying factors

that drive diffusion processes.2 Because of distinct characteristics of diverse new products, few

studies are conclusive in terms of developing a universally applicable model. Some key

findings, however, seem to gain wide recognition in academia and industry.

First, new technologies may not be adopted by all potential users, regardless of their

economic benefits and technological merits. Therefore, a ceiling of adoption rate exists for

many products. Second, not all adopters purchase new products at the same time; some act

earlier to purchase new products, while others respond slowly, waiting for products to become

more mature. Third, diffusion processes can be approximately characterized by asymmetric Scurves, depicting three stages of the diffusion: starting, accelerating, and decreasing as the

adoption ceiling is being reached.

An important diffusion model, the epidemic model, is widely used in marketing and

social studies on diffusion. It assumes a) that consumers value the benefits of a new product

identically and b) that the cost of a new product is constant or declines monotonically over time.

What induces a consumer to purchase the new product is information about the availability and

the benefits of the product. In other words, it is information diffusion that drives new product

adoption by individual consumers.2 The model embraces information diffusion from both

internal sources (news spread by word of mouth from early adopters) and external sources (the

announcement effect by government or commercial advertising programs) by superimposing a

logistic function with an exponential function." 3

The degree of relative dominance of influence by internal or external sources will

determine the general shape of diffusion curve of a specific product.' 3 For instance, if the

adoption of one particular product is more influenced by external sources of information

diffusion (announcement effect) than by internal sources (word of mouth among earlier adopters

to prospective adopters), the rate of diffusion at the beginning stage of the diffusion process is

much higher. This reflects the immediate information exposure to a significant number of

prospective adopters brought about by external sources, in contrast to the more gradual exposure

to internal sources such as news propagation by earlier adopters, a small proportion of the

population, to other prospective adopters. Graphically speaking, a relatively dominant external

source of information diffusion will give an immediate jump-start to the adoption of a new

product in the first years, forming a concave curve with respect to the Y axis (see the exponential

curve in Figure X.1.1). Adoption of a new product with a stronger influence by internal sources

X-1

 EE-RM/STD-01-350 COMMENT 164

APPENDIX X. USING IMPLEMENTATION CURVES TO ESTIMATE MARKET 

PENETRATION OF NON-REGULATORY POLICIES 

X.I Penetration of Non-Regulatory Policies 

There is extensive economic literature on the diffusion process of new products as 

technologies evolve. Some of the literature focuses primarily on the development of analytical 

models of diffusion patterns of new products for individual consumers or for technologies from 

competing firms. I

,2, 3, 4 One study records researchers' attempts to investigate underlying factors 

that drive diffusion processes.2 Because of distinct characteristics of diverse new products, few 

studies are conclusive in terms of developing a universally applicable model. Some key 

findings, however, seem to gain wide recognition in academia and industry. 

First, new technologies may not be adopted by all potential users, regardless of their 

economic benefits and technological merits. Therefore, a ceiling of adoption rate exists for 

many products. Second, not all adopters purchase new products at the same time; some act 

earlier to purchase new products, while others respond slowly, waiting for products to become 

more mature. Third, diffusion processes can be approximately characterized by asymmetric Scurves, depicting three stages of the diffusion: starting, accelerating, and decreasing as the 

adoption ceiling is being reached. 

An important diffusion model, the epidemic model, is widely used in marketing and 

social studies on diffusion. It assumes a) that consumers value the benefits of a new product 

identically and b) that the cost of a new product is constant or declines monotonically over time. 

What induces a consumer to purchase the new product is information about the availability and 

the benefits of the product. In other words, it is information diffusion that drives new product 

adoption by individual consumers. 2 The model embraces information diffusion from both 

internal sources (news spread by word of mouth from early adopters) and external sources (the 

announcement effect by government or commercial advertising programs) by superimposing a 

logistic function with an exponential function. I, 3 

The degree of relative dominance of influence by internal or external sources will 

determine the general shape of diffusion curve of a specific product. I, 3 For instance, if the 

adoption of one particular product is more influenced by external sources of information 

diffusion (announcement effect) than by internal sources (word of mouth among earlier adopters 

to prospective adopters), the rate of diffusion at the beginning stage of the diffusion process is 

much higher. This reflects the immediate information exposure to a significant number of 

prospective adopters brought about by external sources, in contrast to the more gradual exposure 

to internal sources such as news propagation by earlier adopters, a small proportion of the 

population, to other prospective adopters. Graphically speaking, a relatively dominant external 

source of information diffusion will give an immediate jump-start to the adoption of a new 

product in the first years, forming a concave curve with respect to the Y axis (see the exponential 

curve in Figure X.l.l). Adoption of a new product with a stronger influence by internal sources 

X-I 
of information diffusion (such as a socially tightened network formed by prospective adopters)

may start with a few early adopters and gradually increase as the number of adopters grows, and

thus form a convex curve (see the logistic curve in Figure X.1.1).

100%

-U-Logistic Function - + Modified Exponential Function

90% ------- -

External Influence

C 70% ------ ^

60%° ------- - ------ / --------

C

a 50% ------''--------- - --------------------------

40% ---I---------

30% - - - - - -

i

20% ------- InternalInfluence

10% ---- --- -------------------------------------------

0%

0 5 10 15 20 25 30

Year

Figure X.1.1 Comparison of Exponential and Logistic Curves Showing

External and Internal Influences on Consumers

 EE-RM/STD-01-350 COMMENT 164

of information diffusion (such as a socially tightened network formed by prospective adopters) 

may start with a few early adopters and gradually increase as the number of adopters grows, and 

thus form a convex curve (see the logistic curve in Figure X.l.l) . 

--Logistic Function . _./r- Modified Exponential Function 

90% ------------- - --- - ----- - - - - --------- - ------ -- --- -- ---- - --

80% -EXternafIRfluence ----: •. .::.;;;.,:;.. - c..-!_If.'o-t:'-o -:!.In- '-tl'- t.'- rJ-.\>- lI'-·lI'- N- "'"· ~ ...... ' 

70% - - - - - - \ - J,:~ <" -~= ~ - - - - - - - - - ", - - - - - - - - - - - - - - - - - - - - - - . - - - - - -

~ I I -: ::£IE.::::::: :::: :::::: 

10% 1------ ----------- --- -- --- ------------ ------- --- --- -- --- %· ~--~--------~--------~--------r_------~--------~ 

o 5 10 15 20 25 30 

Year 

Figure X.I.1 . Comparison of Exponential and Logistic Curves Showing 

External and Internal Influences on Consumers 

X-2 
REFERENCES

1. Geroski, P. A. Models of Technology Diffusion. Research Policy. 2000. 29: pp. 603-625.

2. Hall, B. H. and B. Khan. Adoption of New Technology. 2003. Department of Economics,

University of California, Berkeley, CA. Working Paper No. E03-330.

3. Lekvall. P and C. Wahlbin. A Study of Some Assumptions Underlying Innovation

Diffusion Functions. Swedish Journal of Economics. 1973. 75: pp. 362-377.

4. Van den Bulte, C. Want to Know How Diffusion Speed Varies Across Countries and

Products? Try a Bass Model. PDMA Visions. 2002 . 26(4): pp. 12-15.

 EE-RM/STD-01-350 COMMENT 164

REFERENCES 

1. Geroski, P. A. Models of Technology Diffusion. Research Policy. 2000. 29: pp. 603-625. 

2. Hall, B. H. and B. Khan. Adoption o/New Technology. 2003. Department of Economics, 

University of Cali fomi a, Berkeley, CA. Working Paper No. E03-330. 

3. Lekval1. P and C. Wahlbin. A Study of Some Assumptions Underlying Innovation 

Diffusion Functions. Swedish Journal o/Economics. 1973.75: pp. 362-377. 

4. Van den Bulte, C. Want to Know How Diffusion Speed Varies Across Countries and 

Products? Try a Bass Model. PDMA Visions. 2002. 26(4): pp. 12-15. 

X-3