The Life Cycle of Products: Evidence and Implications

53 Pages Posted: 2 May 2018 Last revised: 19 Jan 2023

See all articles by David Argente

David Argente

Pennsylvania State University

Munseob Lee

University of California, San Diego (UCSD)

Sara Moreira

Northwestern University

Date Written: February 26, 2019

Abstract

We exploit detailed product- and firm-level data about the consumer goods industry to document that the sales of individual products decline at a steady pace throughout most of the product life cycle. This pattern is common across heterogeneous types of products and is mostly explained by declines in quantities sold rather than declining prices. The results are consistent with products quickly becoming obsolete as they face competition from newer products sold by competing firms and competition from newer products sold by the same firm. We build and estimate a tractable dynamic model of firm growth in which firms invest in creating new products that impact both its own existing products and the products of competitors. Our model highlights an innovation-obsolescence cycle mechanism where firms need to introduce new products to grow; otherwise their portfolios become obsolete as rivals introduce new products of their own. By introducing new products, however, firms accelerate the decline in sales of their own existing products, further depressing sales of products over their life cycle. This mechanism has sizable implications on the quantifications of sources of economic growth and the impact of innovation policies.

Keywords: Product Life Cycle, Firm Dynamics, Multi-Product Firms, Innovation-Obsolescence Cycle

JEL Classification: O31, L11, L25

Suggested Citation

Argente, David and Lee, Munseob and Moreira, Sara, The Life Cycle of Products: Evidence and Implications (February 26, 2019). Available at SSRN: https://ssrn.com/abstract=3163195 or http://dx.doi.org/10.2139/ssrn.3163195

David Argente

Pennsylvania State University ( email )

606 Kern Building
State College, PA 16801
United States

Munseob Lee (Contact Author)

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
La Jolla, CA 92093
United States

HOME PAGE: http://sites.google.com/site/munseob

Sara Moreira

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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