Price Setting and Rapid Technology Adoption: The Case of the PC Industry

Adam Copeland and Adam Shapiro

The Review of Economics and Statistics, 2016, vol. 98, issue 3, 601-616

Abstract: 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.

Keywords: innovation; market structure; computers (search for similar items in EconPapers)
JEL-codes: D40 L10 L63 O30 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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