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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. 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.
    3. Zachary Mahone & Filippo Rebessi, 2019. "Consumer Learning and Firm Dynamics," Department of Economics Working Papers 2019-08, McMaster University.
    4. 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.
    5. 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.
    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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