An interaction effect occurs for small businesses.
When only a small number of small businesses have adopted a technology, there are a small
number of diffuses who can generate information on the technology and from whom the
technological idea can spread. Diffusion rates at this point are low. When the number using the
technology increases the “information base” broadens and because there is still a considerable
number of small firms who have not adopted the new technology the rate of diffusion increases.
When there is a large proportion of small companies using the technology the number of
potential small businesses still remaining becomes small. Te remaining small firms will be
resistant to change and there will be a slow down in the cumulative number of small companies
using the new technology. This will yield an ‘S’-shaped curve. The first formal study of diffusion
was the spread of hybrid corn (Grilliches, 1960). Te adoption rate in different states in the
USA was studied and it was found that there were signifcant diferences between states in the
rate of hybrid corn adoption. Logistic growth curves were fitted by Grilliches to his data and
the parameters found from the curves for the different states showed wide variations.