What difference does dynamics make? The case of digital cameras
When the well-known BLP model is applied to products with rapid technological changes and declining prices it tends to yield implausible results. A sequence of increasingly sophisticated dynamic demand models, most recently Gowrisankaran and Rysman (2009, hereafter GR), have been developed to overcome these problems. We apply both models to new data on the US digital camera market. In addition, we demonstrate that the GR model can be specified as a BLP model plus an additional set of terms. This suggests that a dynamic model can be estimated as a BLP model plus a non-parametric function which is less computationally demanding. As a first step to implementing this semi-parametric approach we estimate a BLP model augmented with age as a proxy for the non-parametric component. We find that demand for digital cameras is more elastic when demand dynamics is accounted for in both the dynamic model and the BLP model with the age proxy. This suggests that the market is more competitive though the results are consistent with firms engaging in intertemporal price discrimination. Merger simulations predict the lowest price and quantity changes using the GR model.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 30 (2012)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/505551|
References listed on IDEAS
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.:
- Weifang Lou & David Prentice & Xiangkang Yin, 2008.
"The Effects of Product Ageing on Demand: The Case of Digital Cameras,"
2008.06, School of Economics, La Trobe University.
- 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.
- Weifang Lou & David Prentice & Xiangkang Yin, 2008. "The Effects of Product Ageing on Demand: The Case of Digital Cameras," Working Papers 2008.06, School of Economics, La Trobe University.
- Elizabeth J. Warner & Robert B. Barsky, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 321-352.
- Marc Rysman & Gautam Gowrisankaran, 2011.
"Dynamics of Consumer Demand for New Durable Goods,"
Boston University - Department of Economics - Working Papers Series
WP2011-062, Boston University - Department of Economics.
- Gautam Gowrisankaran & Marc Rysman, 2007. "Dynamics of Consumer Demand for New Durable Goods," Boston University - Department of Economics - Working Papers Series WP2007-024, Boston University - Department of Economics.
- Gautam Gowrisankaran & Marc Rysman, 2009. "Dynamics of Consumer Demand for New Durable Goods," NBER Working Papers 14737, National Bureau of Economic Research, Inc.
- Lavergne, Pascal & Vuong, Quang H, 1996.
"Nonparametric Selection of Regressors: The Nonnested Case,"
Econometric Society, vol. 64(1), pages 207-19, January.
- Lavergne, P. & Vuong, Q., 1992. "Nonparametric Selection of Regressors : the Nonnested Case," Papers 9204, Southern California - Department of Economics.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
- Winston T.H. Koh, 2005.
"The Micro-foundations of Intertemporal Price Discrimination,"
04-2005, Singapore Management University, School of Economics.
- Winston Koh, 2006. "The micro-foundations of intertemporal price discrimination," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(2), pages 393-410, January.
- Winston T.H. Koh, 2005. "The Micro-foundations of Intertemporal Price Discrimination," Microeconomics Working Papers 22456, East Asian Bureau of Economic Research.
- Juan Esteban Carranza, 2010.
"Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras,"
BORRADORES DE ECONOMÍA Y FINANZAS
007127, UNIVERSIDAD ICESI.
- 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.
- Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
- Daniel A. Ackerberg, 2003. "Advertising, learning, and consumer choice in experience good markets: an empirical examination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1007-1040, 08.
- 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.
- Victor Aguirregabiria & Victor Aguirregabiria & Aviv Nevo & Aviv Nevo, 2010.
"Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games,"
tecipa-419, University of Toronto, Department of Economics.
- Aguirregabiria, Victor & Nevo, Aviv, 2010. "Recent developments in empirical IO: dynamic demand and dynamic games," MPRA Paper 27814, University Library of Munich, Germany.
- Lawrence M. Ausubel & Raymond J. Deneckere, 1987. "One is Almost Enough for Monopoly," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 255-274, Summer.
- Christopher R. Knittel & Konstantinos Metaxoglou, 2008. "Estimation of Random Coefficient Demand Models: Challenges, Difficulties and Warnings," NBER Working Papers 14080, National Bureau of Economic Research, Inc.
- Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
- Junji Xiao, 2008. "Technological advances in digital cameras: Welfare analysis on easy-to-use characteristics," Marketing Letters, Springer, vol. 19(2), pages 171-181, June.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:30:y:2012:i:1:p:30-40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.