Because of network externalities, the success of a software product may depend in part on the size of its installed base and its conformance to industry standards. This research builds a hedonic model to determine the effects of network externalities, standards, intrinsic features and a time trend on microcomputer spreadsheet software prices. When data for a sample of products during the 19871992 time period were analyzed using this model, four main results emerged: 1) Network externalities, as measured by the size of a product's installed base, significantly increased the price of spreadsheet products: a one percent increase in a product's installed base was associated with a 0.75% increase in its price. 2) Products which adhered to the dominant standard, the Lotus menu tree interface, commanded prices which were higher by an average of 46%. 3) Although nominal prices increased slightly during this time period, quality-adjusted prices declined by an average of 16% per year. 4) The hed...

This paper proposes a technique for obtaining more precise estimates of demand and supply curves when one is constrained to market-level data. The technique allows one to augment market share data with information relating consumer demographics to the characteristics of the products they purchase. This extra information plays the same role as consumer-level data, allowing estimated substitution patterns and (thus) welfare to directly reflect demographic-driven differences in tastes for observed characteristics. I apply the technique to the automobile market, estimating the economic effects of the introduction of the minivan. I show that models estimated without micro data yield much larger welfare numbers than the model using them, primarily because the micro data appear to free the model from a heavy dependence on the idiosyncratic logit “taste ” error. I complete the welfare picture by measuring the extent of first-mover advantage and profit cannibalization both initially by the innovator and later by the imitators. My results support a story in which large improvements in consumers ’ standard of living arise from competition as firms cannibalize each other’s profits by seeking new goods that give them some temporary market power. I.

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This chapter explains the logic of structural econometric models and compares them to other types of econometric models. We provide a framework researchers can use to develop and evaluate structural econometric models. This framework pays particular attention to describing different sources of unobservables in structural models. We use our framework to evaluate several literatures in industrial organization economics, including the literatures dealing with market power, product differentiation, auctions, regulation and entry.

The purpose of this paper is to present a framework for the empirical analysis of price and quality choice by a multiproduct monopolist. We do so by demonstrating that well-known techniques from the optimal screening literature used in the theoretical analysis of nonlinear pricing map naturally to the empirical analysis of differentiated product markets. We then apply a generalized one-dimensional screening model recently developed by Rochet and Stole (2001) to analyze price and quality choice for Basic cable television services. Consistent with the theory, our preliminary results suggest significant degradation in product quality relative to first-best levels. Furthermore, our results provide strong support for the nonlinear pricing model with random participation of Rochet and Stole (2001) over the classical model of monopoly quality choice of Mussa and Rosen (1978).

Innovative industries are often characterized by rapid product turnover. Product longevity may be driven by both a product’s position within a market as well as its position within a firm’s larger product portfolio. However, we have little understanding of the relative importance of these factors in determining product turnover and how they interact as an industry evolves. Although researchers have invested substantial effort in analyzing firm survival and turnover, there are far fewer studies of the determinants of product survival and turnover. We use hazard rate models and count regression models to describe the behavior of firms and their products with a new and detailed database on the laser printer industry. We show, first, that competition and market structure variables have a large impact on both speeding product exit and delaying product entry. Second, there is some evidence that firms that have maintained a high market share for a number of years keep their products on the market longer than those with lower market share. Finally, firms with high innovative capacity tend to enter markets frequently, but withdraw their products at average rates. Firms with strong brands tend to introduce few products and withdraw their products slowly. With these findings, the paper links product entry and exit decisions to the broader literature on firm strategic and product

(Please do not cite without author’s permission) This paper analyzes a model of consumer adoption of DVD players (the hardware-side) and movie studios ’ supply of movies on DVD discs (the softwareside). My primary focus is the estimation of complementarities between DVD player adoption and availability of content on DVD discs. The size of the complementarities determine the level of strategic inter-dependence between hardware and software firms, and thus play an important role in designing co-marketing strategies through which hardware and software firms can align their incentives. I estimate the parameters of the hardware adoption using household level panel data. To estimate the parameters of the software model, I use a cross section of movies released at different time periods. Estimated complementarities are statistically and economically significant. The hardware-side estimation shows that a 1 % increase in new DVD releases during May 2001 would increase DVD player sales by 0.5%. The software-side estimation indicates that a 1 % increase in DVD player installed base in May 2001 increases the number of new DVD releases by 0.19%. Finally, I present the importance of estimated complementarities from a practitioner’s stand point. In particular, I examine the amount of subsidy the movie studios would be willing to give to increase DVD player sales by 1 more unit.

We review the econometric literature on measuring the returns to R&D. The theoretical frameworks that have been used are outlined, followed by an extensive discussion of measurement and econometric issues that arise when estimating the models. We then provide a series of tables summarizing the major results that have been obtained and conclude with a presentation of R&D spillover returns measurement. In general, the private returns to R&D are strongly positive and somewhat higher than those for ordinary capital, while the social returns

Under the TRIPS agreement, WTO members are required to enforce product patents for pharmaceuticals. The debate about the merits of this requirement has been extremely contentious. Many low-income economies claim that patent protection for pharmaceuticals will result in substantially higher prices for medicines, with adverse consequences for the health and well-being of their citizens. On the other hand, research-based global pharmaceutical companies argue that prices are unlikely to rise significantly because most patented products have therapeutic substitutes. In this paper we empirically investigate the basis of these claims. Central to the ongoing debate is the structure of demand for pharmaceuticals in poor economies where, because health insurance coverage is so rare, almost all medical expense are met out-of-pocket. Using a detailed product-level data set from India, we estimate key price and expenditure elasticities and supply-side parameters for the fluoroquinolones sub-segment of the systemic anti-bacterials (i.e., antibiotics) segment of the Indian pharmaceuticals market. We then use these estimates to carry out counterfactual simulations of what prices, profits and consumer welfare would have been, had the fluoroquinolone molecules we study been under patent in India as they were in the

for many helpful discussions. Comments and suggestions by participants of the 2000 Marketing Science conference in Los Angeles are gratefully acknowledged. Product-Line Length as a Competitive Tool The increasing number of consumer goods and services offered in recent years suggests that product line extensions have become a favored strategy of product managers. A larger assortment, it is often argued, keeps customers loyal and allows firms to charge higher prices. There is disagreement, however, to what extent a longer product line translates into higher profits. We develop an econometric model derived from a game-theoretic perspective that explicitly models firms ’ use of product-line length as a competitive tool. On the demand side, we analytically establish the link between consumer choice and the length of the product line. Based on our derivations, we include a measure of line length in the utility function to investigate consumer preference for variety using a brand level discrete-choice model. The supply side is characterized by price and line length competition between oligopolistic firms.