Reference Quality-Based Competitive Market Structure for Innovation Driven Markets

International Journal of Research in Marketing 32 (2015), pp. 284-296

13 Pages Posted: 5 Nov 2014 Last revised: 13 Sep 2015

See all articles by Wonjoon Kim

Wonjoon Kim

Korea Advanced Institute of Science and Technology (KAIST)

Minki Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: January 1, 2015

Abstract

Innovation-driven durable goods markets see substantial changes in quality and available choice sets and subsequent changes of the reference quality in the market over time. Considering the multi-attribute characteristics of these goods, it is important for businesses to identify attribute-specific competitive landscapes and develop competitive innovation strategies at the product attribute level. Therefore, this paper proposes a reference-dependent choice model for product quality at the product attribute level that can capture the asymmetric effect of innovation shocks on product demand, i.e., the innovation elasticity of demand, as well as the competitive market structure in product innovation. Moreover, we confirm that there is a certain quality span for a product attribute where the values of products depreciate most significantly due to innovation shocks, which we refer to as the innovation shadow zone. We demonstrate the effectiveness of the proposed approach in developing attribute-specific product innovation strategies using U.S. mobile telephone market data.

Keywords: reference quality, innovation-driven durable goods, competitive market structure, product innovation, innovation elasticity

JEL Classification: M03, O03

Suggested Citation

Kim, Wonjoon and Kim, Minki, Reference Quality-Based Competitive Market Structure for Innovation Driven Markets (January 1, 2015). International Journal of Research in Marketing 32 (2015), pp. 284-296, Available at SSRN: https://ssrn.com/abstract=2519039 or http://dx.doi.org/10.2139/ssrn.2519039

Wonjoon Kim (Contact Author)

Korea Advanced Institute of Science and Technology (KAIST) ( email )

291 Gwahak-ro
Yuseong-gu
Daejon, 305-701
Korea, Republic of (South Korea)
+82-42-350-4336 (Phone)

HOME PAGE: http://wjkim.kaist.ac.kr

Minki Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

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