Dynamics of Market Emergence and Product Diffusion

Abstract

This study focuses on the process of market generation and diffusion. Especially, we examine the relationship between market attractiveness and legitimation of the product market. We conduct the study following two steps: First, we refer some previous work to analyze the transition of market such as socio-cognitive and institutional theories. Second, we propose a method to measure the legitimacy which change along with the market expansion from published newspaper articles. In general, it is difficult to observe the transition of the market change from behavioral outcome such as sale amount and diffusion rate, this study measures the latent market change from the change of the word. Third, we develop a quantitative model to examine the relationship between observed degree of legitimacy and marketing performances. Our empirical model is based on the bass diffusion model which enable us to estimate market diffusion rate and examine the impact of the legitimation on the diffusion rate and profitability. As a result, we find that market size and profitability increase at the formulation stage of the legitimacy, on the other hand, the market size and profitability decrease at the stabilized stage. Based on the findings, we also discuss the optimal market entry strategies and desirable new product development strategies. For example, we can obtain an implication to entry observing the change of the word.