The Effects of Product Ageing on Demand: The Case of Digital Cameras
45 Pages Posted: 8 Nov 2008
Date Written: November 3, 2008
Abstract
The static differentiated product demand model when applied to products with rapid product turnover and declining prices, yields implausible results. One response is to explicitly model the inter-temporal choices of consumers but computational demands require restrictive assumptions on consumer heterogeneity and limits on the characteristics included in the model. We propose, instead, to supplement the static model with a control for the age that each product has been in the market. This approach is applied to the US digital camera market and we find we obtain more plausible estimates. Our results are consistent with inter-temporal price discrimination by firms. Furthermore, our results suggest that ignoring the effects of product ageing may result in substantially overestimated price elasticities and technological progress and underestimated price-cost markups.
Keywords: Discrete Choice, Demand Dynamics, Forward-Looking Behavior, Heterogeneous Preferences
JEL Classification: D12, D24, L63
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Estimating Dynamic Models of Imperfect Competition
By Patrick Bajari, C. Lanier Benkard, ...
-
Estimating Dynamic Models of Imperfect Competition
By Patrick Bajari, C. Lanier Benkard, ...
-
Sequential Estimation of Dynamic Discrete Games
By Victor Aguirregabiria and Pedro Mira
-
By Ariel Pakes and Paul Mcguire
-
Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)
By Ariel Pakes, Michael Ostrovsky, ...
-
Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Samples)
By Ariel Pakes, Michael Ostrovsky, ...
-
A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft
-
Multiple Equilibria and Deterrence in Airline Markets
By Federico Ciliberto and Zhou Zhang
-
Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity
-
Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity