  This paper proposes a percolation-based model of new-product diffusion in the
spirit of Solomon et al. (2000) and Goldenberg et al. (2000). A consumer buys
the new product if she has formed her individual valuation of the product
(reservation price) and if this valuation is greater or equal than the price of
the product announced by the firm in a given period. Our model differs from
previous percolation-based models of new-product diffusion in two respects.
First, we consider macroscopic feedback effects affecting the supply or the
demand side of the market (or both). Second, a consumer who did not buy the
product in the period in which her valuation was formed remains a potential
buyer and buys in some later period if and when her individual valuation equals
or exceeds the price of the product. Unlike most previous models of new-product
diffusion, our framework accounts for the empirical finding of long tails
characteristic for early stages of innovation diffusion.
