The Life Cycle of Products: Evidence and Implications
53 Pages Posted: 2 May 2018 Last revised: 19 Mar 2020
Date Written: February 26, 2019
We exploit detailed product- and firm-level data for the consumer goods industry and we document that the sales of individual products decline at a steady pace throughout most of their life cycles. This pattern is common across heterogenous types of products and is mostly due to declines in quantities sold rather than prices. To identify the margins affecting the life cycle of products, we propose a decomposition of product sales based on a parsimonious model of oligopolistic competition between heterogeneous multi-product firms. Our estimates indicate that the systematic decline in sales over time is mostly explained by declines in the appeal of products. The results are consistent with products quickly becoming obsolete as they face competition from newer products of competing firms (business stealing) and from newer products of the same firm (cannibalization). We discuss the implications of our results for our understanding of the role of the life cycle of products in shaping firm growth, welfare, and the nature of competition.
Keywords: Product Life Cycle, Firm Dynamics, Multi-Product Firms, Product Churning, Creative Destruction
JEL Classification: O31, L11, L25
Suggested Citation: Suggested Citation