Modelling Demand for Innovative Products

This paper deals with demand, a (too) frequently neglected aspect of economic theory. It is introduced, described and discussed a simulation model that, mirroring most models in industrial dynamics, provide a very stylised representation of supply and a relatively detailed, although highly general, account for demand. The model does not represent the aspects that influence exogenously demand, like social classes and particular preferences. Rather, assuming every aspect identical for all agents, considers the endogenous dynamics springing from the very development of the market. The core aspects of the model are the algorithm implementing the purchase decisions of buyers, and the endogenous formation of preferences. The former aspect is represented with a bounded rational algorithm based on the lexicographic preferences. The latter is based on the effects of the marketing strategies of producers, biased with information diffused in the society concerning the different products. The exercises discussed do not aim at provide a realistic representation of real observations, but on showing how even such an abstract set-up is able to represent phenomena that are normally either ignored, or assumed as exogenous in the literature. In fact, the use of simulation models allow not only to assess the final outcome of the model, but also the pattern and the micro-explanations of the observed results. Although the model discussed has been highly stylised for the purpose of better presenting its content and results, it may be obviously extended in many different ways. In the conclusion are briefly listed few of the possible extensions of the model in fields where the analysis of demand plays a crucial role