Question

c. Diffusion.
i. Define it,
ii. Explain how it works,
iii. Give 3 examples involving firms that have lead diffusion of some innovation and why these represent good examples of diffusion,
iv. Discuss how diffusion might be affected by a slow growth / no growth economy.
1. Since diffusion is not free, how might it be impacted by economies that are not growing or only growing slowly?

Answer 1

Solution:

Diffusion is the process by which a new idea or new product is accepted by the market. The rate of diffusion is the speed with which the new idea spreads from one consumer to the next. Adoption (the reciprocal process as viewed from a consumer perspective rather than distributor) is similar to diffusion except that it deals with the psychological processes an individual goes through, rather than an aggregate market process. In economics it is more often named "technological change".

It is defined as a theory which explains how, why and at what rate new technology spreads over time among the members of the social system.

The Diffusion of technology takes place in the following way:-

1.         Knowledge:- Here the person becomes aware of the invention.

2.         Persuasion:- Here the person forms a favorable or unfavorable attitude about the product.

3.         Decision:-Here the person decides either to accept or reject the innovation.

4.         Implementation:-Here the person puts the invention to his use.

5.         Confirmation:- Here he decides the results of the invention.

Examples of diffusion of invention:- IBM did not invent Personal Computers but after they saw the high potential in the market it entered. Cellular phones and pagers were first aimed for physicians and other price sensitive consumers but later the companies adopted a approach for mass segments after witnessing its success. Acceptance of credit cards in the market after a lot of struggle and changes is a great example of diffusion.

Diffusion in a slow growth economy is really hard because innovation can work only in an economy which is growing at a fast pace. Any product introduced in the market after it completes its Life cycle demands innovation. But in a slow growth economy since the market takes time in adopting to the new product it leads to a problem and wastage of time. By the time the market adopts it we reach the stage of further advancement.