A dynamic model of consumer replacement cycles in the PC processor industry

Research output: Contribution to journalArticle

49 Scopus citations

Abstract

As high-tech markets mature, replacement purchases inevitably become the dominant proportion of sales. Despite the clear importance of product replacement, little empirical work examines the separate roles of adoption and replacement. A consumer's replacement decision is dynamic and driven by product obsolescence because these markets frequently undergo rapid improvements in quality and falling prices. The goal of this paper is to construct a model of consumer product replacement and to investigate the implications of replacement cycles for firms. To this end, I develop and estimate a dynamic model of consumer demand that explicitly accounts for the replacement decision when consumers are uncertain about future price and quality. Using a unique data set from the PC processor industry, I show how to combine aggregate data on sales and product ownership to infer replacement behavior. The results reveal substantial variation in replacement behavior over time, and this heterogeneity provides an opportunity for managers to tailor their product introduction and pricing strategies to target the consumers of a particular segment that are most likely to replace in the near future.

Original languageEnglish (US)
Pages (from-to)846-867
Number of pages22
JournalMarketing Science
Volume28
Issue number5
DOIs
StatePublished - Sep 2009

Keywords

  • CPU
  • Durable goods
  • Dynamic programming
  • Innovation
  • Pc processor
  • Replacement
  • Structural estimation
  • Technology products
  • Upgrades

ASJC Scopus subject areas

  • Business and International Management
  • Marketing

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