The Life Cycle of Products: Evidence and Implications

44 Pages Posted: 2 May 2018 Last revised: 31 Aug 2020

See all articles by David Argente

David Argente

Pennsylvania State University

Munseob Lee

University of California San Diego

Sara Moreira

Northwestern University

Date Written: February 26, 2019

Abstract

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 show that firms must introduce new products to grow, otherwise their portfolio be- comes obsolete as their rivals introduce new products of their own. By introducing new products, however, firms accelerate the decline in sales of their own existing products.

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 ( 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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