Publication Date: February 2015
Motivated by the rise of social media, we build a model studying the eﬀect of an economy’s potential for social learning on the adoption of innovations of uncertain quality. Provided consumers are forward-looking (i.e., recognize the value of waiting for information), equilibrium dynamics depend non-trivially on qualitative and quantitative features of the informational environment. We identify informational environments that are subject to a saturation eﬀect, whereby increased opportunities for social learning can slow down adoption and learning and do not increase consumer welfare. We also suggest a novel, purely informational explanation for diﬀerent commonly observed adoption curves (S-shaped vs. concave).
JEL Classification Codes: D81, D83, O33See CFDP Version(s): CFDP 1988R