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Adam Hale Shapiro
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Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics (2016) 98 (3): 601–616.
Published: 01 July 2016
Abstract
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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.
Includes: Supplementary data