Upstream Innovation and Product Variety in the U.S. Home PC Market

Alon Eizenberg

The Review of Economic Studies, 2014, vol. 81, issue 3, 1003-1045

Abstract: This article investigates the welfare implications of the rapid innovation in central processing units (CPUs), and asks whether it results in inefficient elimination of basic personal computer (PC) products. I analyse a game in which firms make multiple discrete product choices, and tackle challenges such as partial identification and sample selection. Estimation results demonstrate that the demand for PCs is highly segmented, and that fixed costs consume a substantial portion of the per-unit producer profit. The estimated model implies that Intel's introduction of its Pentium M chip contributed significantly to the growth of the mobile PC segment and to consumer welfare. The lion's share of the benefits to consumers was enjoyed by the 20% least price-sensitive consumers. I also find that the Pentium M crowded out the Pentium III and Pentium 4 technologies, and that the benefits to consumers from keeping those older products on the shelf would have been comparable to the added fixed costs. While total welfare cannot be increased by keeping older technologies on the shelf, such a policy would have allowed the benefits from innovation to “trickle down” to price-sensitive households, improving their access to mobile computing.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (114)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdu004 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:81:y:2014:i:3:p:1003-1045

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().