Price Setting and Rapid Technology Adoption: The Case of the PC Industry
The Review of Economics and Statistics
2016
We examine how the confluence of competition and upstream innovation influences downstream firms’ profit-maximizing strategies. We focus on personal computers and use two novel data sets to describe the dramatic fall in both price (27% at an annual rate) and sales of a computer over its product cycle. Further, we document that computers are typically sold for only four months before being replaced by a higher-quality product. To explain these facts, we develop and calibrate a vintage capital model that combines a competitive market structure with an exogenous rapid rate of innovation.
- DOI
- 10.1162/rest_a_00539
- Volume
- 98 (3)
- Pages
- 601-616
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref