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Prices over the Product Life Cycle: An Empirical Analysis

Author

Listed:
  • Iqbal Syed

    () (School of Economics, University of New South Wales)

  • Daniel Melser

    () (Department of Economics, Monash University)

Abstract

This paper explores the extent to which goods follow systematic pricing patterns over their life cycle. The theoretical literature, and anecdotal evidence, suggests that new products are often introduced at high prices which decline as the good ages while, older goods exit the market at a discount. We outline and apply a smoothing-spline approach to the estimation of life cycle pricing effects using data on two different types of goods; supermarket products (beer, canned soup and cereals) and high-tech goods (desktop and laptop computers, and personal digital assistants). We interpret these results within a simple conceptual framework and find evidence for the existence of significant life cycle pricing effects. This implies that hedonic pricing functions which exclude age are misspecified. Furthermore, in order to eliminate bias price index samples must be constructed carefully. Using a simulation we show that the bias introduced by the traditional match-model method may be non-trivial.

Suggested Citation

  • Iqbal Syed & Daniel Melser, 2008. "Prices over the Product Life Cycle: An Empirical Analysis," Discussion Papers 2008-25, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2008-25
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    File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_25.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Product life cycle; Hedonic regression; Price index; Spline smoothing;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • D00 - Microeconomics - - General - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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