Analysis on Product Diffusion Model Based on the Network Externality

Since the creation of Bass Model, many scholars had made plenty of revises on it. However, the studies on the product diffusion model with network externality are relatively fewer. This article, based on the introduction of the Bass Model and the former research findings, is designed to establish the consumers' utility function, introduce the conception of willingness to pay, assume the number of the real demanders equal to the potential demanders whose utility exceed the firms' fixed price, and gradually set up a modified diffusion model without network externality. Then according to the network externality that consumer' s real perception price decreases while the accumulated number of users increases, a modified product diffusion model with network externality is finally presented.