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Price Setting and Rapid Technology Adoption: The Case of the PC Industry

Author

Listed:
  • Adam Copeland

    (Federal Reserve Bank of New York)

  • Adam Hale Shapiro

    (Federal Reserve Bank of San Francisco)

Abstract

We examine how the confluence of competition and upstream innovation influences downstream firms’ profit-maximizing strategies. We focus on personal computers and use two novel data sets to describe the dramatic fall in both price (27% at an annual rate) and sales of a computer over its product cycle. Further, we document that computers are typically sold for only four months before being replaced by a higher-quality product. To explain these facts, we develop and calibrate a vintage capital model that combines a competitive market structure with an exogenous rapid rate of innovation.

Suggested Citation

  • Adam Copeland & Adam Hale Shapiro, 2016. "Price Setting and Rapid Technology Adoption: The Case of the PC Industry," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 601-616, July.
    • Handle: RePEc:tpr:restat:v:98:y:2016:i:3:p:601-616
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00539
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    Citations

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    Cited by:

    1. Michael Neubert, 2017. "International Pricing Strategies for Born-Global Firms," Central European Business Review, Prague University of Economics and Business, vol. 2017(3), pages 41-50.
    2. Yin Yu Lum Gousgounis & Michael Neubert, 2020. "Price-setting strategies and practice for medical devices used by consumers," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(3), pages 218-226, June.
    3. David Argente & Munseob Lee & Sara Moreira, 2018. "How do Firms Grow? The Life Cycle of Products Matters," 2018 Meeting Papers 1174, Society for Economic Dynamics.
    4. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Which is better for durable goods producers, exclusive or open supply chain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 158-176, January.
    5. Zachary Mahone & Filippo Rebessi, 2019. "Consumer Learning and Firm Dynamics," Department of Economics Working Papers 2019-08, McMaster University.
    6. Adam Hale Shapiro, 2022. "Decomposing Supply and Demand Driven Inflation," Working Paper Series 2022-18, Federal Reserve Bank of San Francisco.

    More about this item

    Keywords

    innovation; market structure; computers;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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