Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras
Juan Esteban Carranza
Universidad Icesi - Economics & Management
March 1, 2009
Universidad Icesi Department of Economics Research Paper No. 18
This paper contains an empirical dynamic model of supply and demand in the market for digital cameras with endogenous product innovation. On the demand side, heterogeneous consumers time optimally the purchase of goods depending on the expected evolution of prices and characteristics of available cameras. On the supply side, firms introduce new camera models accounting for the dynamic value of new products and the optimal behavior of consumers. The model is estimated using data from the market for digital cameras and the estimated model replicates rich dynamic features of the data. The estimated model is used to perform counterfactual computations, which suggest that more competition or lower product introduction costs generate more product variety but lower average product quality.
Number of Pages in PDF File: 50
Keywords: Durable goods, Dynamic demand, Innovation
JEL Classification: C30, D10, L10
Date posted: June 15, 2010 ; Last revised: June 23, 2010
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