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Product innovation and adoption in market equilibrium: The case of digital cameras

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  • Carranza, Juan Esteban

Abstract

This paper studies the effect of competition on product innovation in the market for digital cameras during the years 1998 to 2001. The analysis is based on a structural dynamic model that is estimated and used to simulate the innovation behavior of firms in counterfactual environments. The model features heterogeneous consumers, who time optimally purchase goods, depending on the expected evolution of the prices and the characteristics of available cameras. On the supply side, firms introduce new camera models and choose their characteristics, accounting for the dynamic value of new products and the optimal dynamic behavior of consumers. The counterfactual simulations imply that an increase in competition in the industry would not have generated better products on average and, depending on the type of competition, would have generated products with lower average quality.

Suggested Citation

  • Carranza, Juan Esteban, 2010. "Product innovation and adoption in market equilibrium: The case of digital cameras," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 604-618, November.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:6:p:604-618
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    More about this item

    Keywords

    Durable goods Dynamic demand Innovation;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D10 - Microeconomics - - Household Behavior - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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