DEMAND AND SUPPLY IN NEW MARKETS - DIFFUSION WITH BILATERAL LEARNING

I explore the endogenous joint evolution of demand and supply irt new markets, Finns and consumers learn, in a Bayesian fashion, by observin g the behavior of other firms and consumers, respectively, As a result , endogenous information diffusion takes place on both sides of the ma rket, In equilibrium, entry occurs in waves and its level depends on t wo distinct informational effects, The model identifies an externality that provides a natural explanation for S-shaped diffusion paths: ent ry reveals information to the consumers about the value of the new pro duct, and thus early waves of entry affect the expected profitability of subsequent entry.