Growth-cycle decomposition diffusion model

Abstract

The diffusion model has been widely used to explain the S-shaped cumulative growth of markets for retail service and consumer durable goods. In many situations, sales fluctuate because of both growth of innovation diffusion and transitory changes in an external factor, called cycle. The traditional diffusion model, however, cannot distinguish between the two. We develop the growth-cycle decomposition diffusion model to distinguish the growth from the cycle, where the cycle incorporates a few external variables determining the transitory sales environment. The proposed model is applied to estimating the diffusion process for the annual sales of room air conditioners in Korea.