 A Dynamic Model of Consumer Replacement Cycles in the PC Processor IndustryBrett Gordon () Marketing Science, 2009, vol. 28, issue 5, 846-867 Abstract: As high-tech markets mature, replacement purchases inevitably become the dominant proportion of sales. Despite the clear importance of product replacement, little empirical work examines the separate roles of adoption and replacement. A consumer's replacement decision is dynamic and driven by product obsolescence because these markets frequently undergo rapid improvements in quality and falling prices. The goal of this paper is to construct a model of consumer product replacement and to investigate the implications of replacement cycles for firms. To this end, I develop and estimate a dynamic model of consumer demand that explicitly accounts for the replacement decision when consumers are uncertain about future price and quality. Using a unique data set from the PC processor industry, I show how to combine aggregate data on sales and product ownership to infer replacement behavior. The results reveal substantial variation in replacement behavior over time, and this heterogeneity provides an opportunity for managers to tailor their product introduction and pricing strategies to target the consumers of a particular segment that are most likely to replace in the near future. Keywords: durable goods; replacement; structural estimation; dynamic programming; innovation; upgrades; PC processor; CPU; technology products (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:28:y:2009:i:5:p:846-867 Access Statistics for this article More articles in Marketing Science from INFORMS Contact information at EDIRC. |
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