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
Date Written: January 1, 2015
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: Suggested Citation