A Study of the Impact of Price Elasticity on the Adoption Decision of Minicomputers

• Main Author: Crittenden, Dorrell W.
• Published: NSUWorks 2005
• Subjects: Computer Sciences
• Online Access: http://nsuworks.nova.edu/gscis_etd/469

The rate at which a new technology is adopted by a population, called the diffusion rate, has been studied extensively in many fields, particularly the Information Systems field. Price elasticity, the rate at which quantity demanded changes, as a function of price, could be a useful measure in explaining diffusion patterns. In this empirical study, the well- known Bass diffusion model is fitted to a new dataset. Changes in the price elasticity over time were modeled after explaining away the effect of product characteristics in a hedonic regression. The main findings are: a) price elasticity changes over time, b) the changes in price elasticity are related to the life cycle stage of the product life cycle. These findings could offer a valuable empirical guide for managers to evaluate price and the effects of diffusion faced by the adopter population. The implications are that not all adopters react the same with respect to time and price effects. Another important implication suggests that an improved focus on the determinants of price elasticity could also play an important part in the Information Systems decision making process.