Measuring Benefits from New Products in Markets with Information Frictions
54 Pages Posted: 23 Sep 2019 Last revised: 13 Jul 2020
Date Written: July 10, 2020
I study how much consumers benefit from new products in markets with information frictions. I analyze new products in the U.S. hard drive market, a market with ample product innovation. Using unique browsing data from the Comscore Web-Behavior Panel, I measure the magnitude of two frictions, limited consideration and costly search, and show that both play a crucial role in shaping consumer demand. Omitting these frictions from analysis makes the researcher underestimate consumer surplus from new hard drives, as it appears that consumers do not value the attributes these hard drives offer. Partly eliminating frictions substantially increases consumers' ability to benefit from new hard drives.
Keywords: New Products, Consumer Search, Information Frictions, Preference Heterogeneity, Bayesian Estimation
JEL Classification: C11, C51, D83, M37, O33
Suggested Citation: Suggested Citation