Prices over the Product Life Cycle: An Empirical Analysis

Iqbal Syed () and Daniel Melser

No 2008-25, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper explores the extent to which goods follow systematic pricing patterns over their life cycle. The theoretical literature, and anecdotal evidence, suggests that new products are often introduced at high prices which decline as the good ages while, older goods exit the market at a discount. We outline and apply a smoothing-spline approach to the estimation of life cycle pricing effects using data on two different types of goods; supermarket products (beer, canned soup and cereals) and high-tech goods (desktop and laptop computers, and personal digital assistants). We interpret these results within a simple conceptual framework and find evidence for the existence of significant life cycle pricing effects. This implies that hedonic pricing functions which exclude age are misspecified. Furthermore, in order to eliminate bias price index samples must be constructed carefully. Using a simulation we show that the bias introduced by the traditional match-model method may be non-trivial.

Keywords: Product life cycle; Hedonic regression; Price index; Spline smoothing (search for similar items in EconPapers)
JEL-codes: C43 C50 D00 E31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-11
New Economics Papers: this item is included in nep-com and nep-mac
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