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Markets with Technological Progress: Pricing, Quality and Novelty

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  • von Auer, Ludwig
  • Trede, Mark

Abstract

New and old products differ in two respects: quality and newness. Whereas a higher quality of a new product always benefits consumers, the newness itself benefits some consumers, but not others, and for some, it is even a disadvantage. We capture these features in a Hotelling model of Over- Lapping Innovators (HOLI model), entailing a sequence of static Hotelling games of horizontal product differentiation (newness), that we extend by vertical product differentiation (quality). In this model the firms compete on quality and price. Using advanced dynamic hedonic regression methods, we empirically investigate the actual pricing of firms in the German laser printer market. We show that their pricing corresponds to our model with the entrant acting as the Stackelberg follower.

Suggested Citation

  • von Auer, Ludwig & Trede, Mark, 2014. "Markets with Technological Progress: Pricing, Quality and Novelty," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100581, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100581
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    1. Ludwig von Auer & Mark Trede, 2018. "Markets with technological progress: pricing, quality, and novelty," Journal of Economics, Springer, vol. 124(2), pages 121-137, June.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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