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

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  • Amil Petrin

Abstract

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.

Suggested Citation

  • Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8227 Note: IO
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    References listed on IDEAS

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    8. 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 444-479, April.
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    Citations

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    Cited by:

    1. Nakamura, Emi & Zerom, Dawit, 2008. "Accounting for Incomplete Pass-Through," MPRA Paper 14389, University Library of Munich, Germany.
    2. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    3. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079.
    4. C. Robert Clark, 2003. "Advertising Restrictions and Competition in the Children's Breakfast Cereal Industry / Restrictions et compétition publicitaire dans l'industrie des céréales pour enfants," CIRANO Working Papers 2003s-30, CIRANO.
    5. Banzhaf, H. Spencer, 2002. "Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles," Discussion Papers dp-02-10-, Resources For the Future.
    6. N. Jonker, 2001. "Constructing Quality Adjusted Price Indexes: a Comparison of Hedonic and Discrete Choice Models," WO Research Memoranda (discontinued) 673, Netherlands Central Bank, Research Department.
    7. Austan Goolsbee & Amil Petrin, 2001. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable Television," NBER Working Papers 8317, National Bureau of Economic Research, Inc.
    8. Eduardo P. S. Fiuza, 2015. "Automobile Demand and Supply in Brazil: Effects of Tax Rebates and Trade Liberalization on Price-marginal Cost Markups in the 1990s," Discussion Papers 0119, Instituto de Pesquisa Econômica Aplicada - IPEA.
    9. Spiller, Elisheba & Stephens, Heather M., 2012. "The Heterogeneous Effects of Gasoline Taxes: Why Where We Live Matters," Discussion Papers dp-12-30, Resources For the Future.
    10. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
    11. Neha Bairoliya & Pinar Karaca-Mandic & Jeffrey S. McCullough & Amil Petrin, 2017. "Consumer Learning and the Entry of Generic Pharmaceuticals," NBER Working Papers 23662, National Bureau of Economic Research, Inc.
    12. Cláudio Ribeiro de Lucinda, 2010. "Quantifying the Benefits of Multifuel Cars: An Application of Random-Coefficients Logit Model," Working Papers 01-2010, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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