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The Effects of Product Ageing on Demand: The Case of Digital Cameras

Author

Listed:
  • Weifang Lou

    (Department of Economics and Finance, La Trobe University)

  • David Prentice

    (Department of Economics and Finance, La Trobe University)

  • Xiangkang Yin

    (Department of Economics and Finance, La Trobe University)

Abstract

The 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.

Suggested Citation

  • 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.
    • Handle: RePEc:ltr:wpaper:2008.06
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    File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0016/130912/2008.06.pdf
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    Cited by:

    1. Victor Aguirregabiria & Victor Aguirregabiria & Aviv Nevo & Aviv Nevo, 2010. "Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games," Working Papers tecipa-419, University of Toronto, Department of Economics.
    2. 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.
    3. 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

    Keywords

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    JEL classification:

    • 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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