Measuring Benefits from New Products in Markets with Information Frictions

54 Pages Posted: 23 Sep 2019 Last revised: 13 Jul 2020

See all articles by Ilya Morozov

Ilya Morozov

Kellogg School of Management

Date Written: July 10, 2020

Abstract

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

Morozov, Ilya, Measuring Benefits from New Products in Markets with Information Frictions (July 10, 2020). Available at SSRN: https://ssrn.com/abstract=3446398 or http://dx.doi.org/10.2139/ssrn.3446398

Ilya Morozov (Contact Author)

Kellogg School of Management ( email )

Evanston, IL 60201
United States

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