A Generalized Model for Market Substitution

Spinrad, B.I. (1979). A Generalized Model for Market Substitution. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-79-053

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Abstract

Market penetration by new technologies is an established fact. The form of the curves of penetration can be expressed by simple mathematical rules, and fit experience very well. However, it has not been able to argue rigorously that future market penetration will follow the same rules, because a theoretical basis for these rules is lacking.

V. Peterka has proposed such a basis. It is shown here that it follows from detailed considerations of the investment practices of centrally planned economies. Another model, heuristically reasonable for market economies, is needed. This report offers such a model. The mathematical structure of the new model is identical with that of Peterka, but the models differ in one significant parameter, as well as in applicable rules for specifying costs.

In spite of these differences, the two models each support the market penetration rules, and thus we can expect that prediction of future market penetrations can be more confidently expressed, both for centrally planned and for market economies.

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