The Effects of Product Ageing on Demand: The Case of Digital Cameras
AbstractThe static differentiated product demand model when applied to products with rapid product turnover and declining prices, yields implausible results. One response is to explicitly model the inter-temporal choices of consumers but computational demands require restrictive assumptions on consumer heterogeneity and limits on the characteristics included in the model. We propose, instead, to supplement the static model with a control for the age that each product has been in the market. This approach is applied to the US digital camera market and we find we obtain more plausible estimates. Our results are consistent with inter- temporal price discrimination by firms. Furthermore, our results suggest that ignoring the effects of product ageing may result in substantially overestimated price elasticities and technological progress and underestimated price-cost mark-ups.
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Bibliographic InfoPaper provided by School of Economics, La Trobe University in its series Working Papers with number 2008.06.
Length: 45 pages
Date of creation: Nov 2008
Date of revision:
Discrete Choice; Demand Dynamics; Forward-Looking Behavior; Heterogeneous Preferences;
Other versions of this item:
- Lou, Weifang & Prentice, David & Yin, Xiangkang, 2008. "The Effects of Product Ageing on Demand: The Case of Digital Cameras," MPRA Paper 13407, University Library of Munich, Germany.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
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