Abstract
A dynamic microeconomic model is presented that establishes the price and unit sales evolution of heterogeneous goods consisting of successive homogenous product generations. It suggests that for a fast growing supply the mean price of the generations are governed by a logistic decline towards a floor price. It is shown that generations of a heterogeneous good are in mutual competition. Their market shares are therefore governed by a Fisher-Pry law while the total unit sales are governed by the lifecycle dynamics of the good. As a result the absolute unit sales of a generation exhibit a characteristic sales peak consisting of a rapid increase followed by a long tail. The presented approach shows that the evolution of successive product generations can be understood as an evolutionary adaptation process. The applicability of the model is confirmed by a comparison with empirical investigations on successive DRAM generations.
Highlights
Presented is a microeconomic model for the price and unit sales evolution of heterogeneous goods consisting of successive homogenous product generations
The key feature of heterogeneous goods is the presence of multiple generations with substantial fitness advantages fij (Eq (44))
In this case generations suffer from a substitution process and the unit sales evolution of a generation may differ considerably from the total unit sales of the good
Summary
Presented is a microeconomic model for the price and unit sales evolution of heterogeneous goods consisting of successive homogenous product generations. It suggests that heterogeneous goods can be treated as a collection of homogenous goods of successive product generations. DRAMs are subject to a rapid succession of new generations While studying this heterogeneous good Victor and Ausubel [22] characterized the sales dynamics of DRAM generations as having properties similar to fruit flies in the biological evolution. This statement is in agreement with the presented model. After the theory is compared with empirical investigations of the DRAM market the paper ends with a discussion and some concluding remarks
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