Prices over the Product Life Cycle: An Empirical Analysis
AbstractThis paper explores the extent to which goods follow systematic pricing patterns over their life cycle. The theoretical literature, and anecdotal evidence, suggests that new products are often introduced at high prices which decline as the good ages while, older goods exit the market at a discount. We outline and apply a smoothing-spline approach to the estimation of life cycle pricing effects using data on two different types of goods; supermarket products (beer, canned soup and cereals) and high-tech goods (desktop and laptop computers, and personal digital assistants). We interpret these results within a simple conceptual framework and find evidence for the existence of significant life cycle pricing effects. This implies that hedonic pricing functions which exclude age are misspecified. Furthermore, in order to eliminate bias price index samples must be constructed carefully. Using a simulation we show that the bias introduced by the traditional match-model method may be non-trivial.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2008-25.
Length: 24 pages
Date of creation: Nov 2008
Date of revision:
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More information through EDIRC
Product life cycle; Hedonic regression; Price index; Spline smoothing;
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- D00 - Microeconomics - - General - - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-COM-2009-01-31 (Industrial Competition)
- NEP-MAC-2009-01-31 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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