Investigation of the effect of secondary market on the diffusion of innovation

In the high-tech product market, the number of hungry adopters, a new type of early adopters who buy new products and sell them soon in the on- or off-line secondary market to seek for the other new products, has been increasing due to the short product life cycle of high-tech products and the low transaction cost on the Internet. This new phenomenon means that it is inappropriate to consider customers only in the primary market as total adopters in innovation diffusion modeling, since purchasers in the secondary market also have a word-of-mouth effect on the remaining non-adopters. To explain this new phenomenon, we modify the basic Bass diffusion model by incorporating the effect of the secondary market and conduct an empirical analysis. As a result, we conclude that the basic Bass model is likely to overestimate sales volume and tends to forecast lagged peak time when there is an effect from the secondary market. This means that applying a diffusion model to high-tech products without considering the secondary market effect would provide an inaccurate market forecast.

► We propose the modified Bass diffusion model incorporating secondary market effect.
► Both buyers and sellers in secondary market have word-of-mouth effect.
► The basic Bass model overestimates sales volume and forecasts lagged peak time.
► For accurate forecast of market sales, we should consider the secondary market.