Cellular Automata with Network Incubation in Information Technology Diffusion

Innovation diffusion of network goods determines direct network externalities that depress sales for long periods and delay full benefits. We model this effect through a multiplicative dynamic market potential driven by a latent individual threshold embedded in a special Cellular Automata representation. The corresponding mean field approximation of its aggregate version is a Riccati equation with a closed form solution. This allows the detection of a change-point time separating an incubation period from a subsequent take-off due to a collective threshold (critical mass). Weighted nonlinear least squares are the main inferential methodology. An application is analysed with reference to USA fax machine diffusion.