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Quantifying the Benefits of New Products: The Case of the Minivan

  • Amil Petrin
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    I develop a technique useful for obtaining more precise estimates of demand and supply curves when constrained to market-level data. It augments the estimation routine with data on the average characteristics of consumers that purchase different products. I apply the technique to the automobile market, estimating the economic effects of the minivan introduction. I show that standard approaches yield results that are meaningfully different from those obtained with my extension. I report benefits accruing to both minivan and non-minivan consumers. I complete the welfare picture by measuring the extent of first- mover advantage and of profit cannibalization both initially by the innovator and later by the imitators. My results support a simple economic story where large improvements in consumers' standard of living arise from competition as firms, ignoring the externalities they impose on one another, cannibalize each others profits by continually seeking new goods that give them some temporary market power.

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    File URL: http://www.nber.org/papers/w8227.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8227.

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    Date of creation: Apr 2001
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    Publication status: published as Petrin, Amil. "Quantifying The Benefits Of New Products: The Case Of The Minivan," Journal of Political Economy, 2002, v110(4,Aug), 705-729.
    Handle: RePEc:nbr:nberwo:8227
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    1. Shane Greenstein, 1994. "From Superminis to Supercomputers: Estimating Surplus in the Computing Market," NBER Working Papers 4899, National Bureau of Economic Research, Inc.
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    6. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
    7. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
    8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    9. 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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