Estimating demand for SDI-related spin-off technologies

The early stage of industry development demand consists of initial purchase or adoption of the innovation. Demand grows to a peak and then declines as a market becomes saturated. The diffusion process is characterized as similar to the contagion process in the spread of disease. Holding constant price, demand growth is influenced by the relative importance of innovators and imitators in the population of consumers and by the contagion rate. When prices decline the adoption process is speeded up and the market for the product is expanded. When price depends upon experience, or accumulated output, profit optimizing behavior of firms, and upon the adoption process, the rate at which prices will fall will depend upon the learning rate parameter, demand elasticity and upon the parameters of the contagion process. A conceptual framework has been constructed to explore the relationship between diffusion rates, learning curves and demand with respect to SDI-related technological innovations.