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


  • Carranza, Juan Esteban


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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    References listed on IDEAS

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    5. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
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    7. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
    8. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    9. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
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    Cited by:

    1. Ferrari, Paolo, 2014. "The dynamics of modal split for freight transport," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 163-176.
    2. Salvador Navarro & Jin Zhou, 2017. "Identifying Agent's Information Sets: an Application to a Lifecycle Model of Schooling, Consumption, and Labor Supply," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 58-92, April.
    3. Rockett, Katharine, 2012. "Perspectives on the knowledge-based society: An introduction to the special issue," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages =1-22.
    4. 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.
    5. Ronald L. Goettler & Brett R. Gordon, 2011. "Does AMD Spur Intel to Innovate More?," Journal of Political Economy, University of Chicago Press, vol. 119(6), pages 1141-1200.
    6. Chen, Jiawei & Esteban, Susanna & Shum, Matthew, 2008. "Demand and supply estimation biases due to omission of durability," Journal of Econometrics, Elsevier, vol. 147(2), pages 247-257, December.
    7. Andrew Ching & Masakazu Ishihara, 2014. "Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games," 2014 Meeting Papers 782, Society for Economic Dynamics.
    8. Reeling, Carson & Verdier, Valentin & Lupi, Frank, 2016. "Valuing Natural Resources Allocated by Dynamic Lottery," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235673, Agricultural and Applied Economics Association.
    9. Salvador Navarro, 2011. "Using Observed Choices to Infer Agent's Information: Reconsidering the Importance of Borrowing Constraints, Uncertainty and Preferences in College Attendance," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20118, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    10. Weifang Lou, 2009. "Estimating the Impact of a Potential Process Innovation and the Optimal Strategy of Licensing," Working Papers 2009.03, School of Economics, La Trobe University.
    11. Prajogo, Daniel I., 2016. "The strategic fit between innovation strategies and business environment in delivering business performance," International Journal of Production Economics, Elsevier, vol. 171(P2), pages 241-249.
    12. Lou, Weifang & Prentice, David & Yin, Xiangkang, 2012. "What difference does dynamics make? The case of digital cameras," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 30-40.

    More about this item


    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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