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Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras

50 Pages Posted: 15 Jun 2010 Last revised: 23 Jun 2010

Juan Esteban Carranza

Universidad Icesi - Economics & Management

Date Written: March 1, 2009

Abstract

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.

Keywords: Durable goods, Dynamic demand, Innovation

JEL Classification: C30, D10, L10

Suggested Citation

Carranza, Juan Esteban, Product Innovation and Adoption in Market Equilibrium: The Case of Digital Cameras (March 1, 2009). Universidad Icesi Department of Economics Research Paper No. 18. Available at SSRN: https://ssrn.com/abstract=1624251 or http://dx.doi.org/10.2139/ssrn.1624251

Juan E. Carranza (Contact Author)

Universidad Icesi - Economics & Management ( email )

Cali
Colombia

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