Logistic Function - in Economics: Diffusion of Innovations

In Economics: Diffusion of Innovations

The logistic function can be used to illustrate the progress of the diffusion of an innovation through its life cycle. Historically, when new products are introduced there is an intense amount of research and development which leads to dramatic improvements in quality and reductions in cost. This leads to a period of rapid industry growth. Some of the more famous examples are: railroads, incandescent light bulbs, electrification, the Ford Model T, air travel and computers. Eventually, dramatic improvement and cost reduction opportunities are exhausted, the product or process are in widespread use with few remaining potential new customers, and markets become saturated.

Logistic analysis was used in papers by several researchers at the International Institute of Applied Systems Analysis (IIASA). These papers deal with the diffusion of various innovations, infrastructures and energy source substitutions and the role of work in the economy as well as with the long economic cycle. Long economic cycles were investigated by Robert Ayres (1989). Cesare Marchetti published on long economic cycles and on diffusion of innovations. Arnulf Grübler’s book (1990) gives a detailed account of the diffusion of infrastructures including canals, railroads, highways and airlines, showing that their diffusion followed logistic shaped curves.

Carlota Perez used a logistic curve to illustrate the long (Kondratiev) business cycle with the following labels: beginning of a technological era as irruption, the ascent as frenzy, the rapid build out as synergy and the completion as maturity.