Price Elasticity Dynamics Over The Product Life Cycle: A Study Of Consumer Durables

Extending the work of Parker (1992) which considers only first purchases and Simon (1988) which considers brand-level sales, the authors empirically provide support for the hypothesis that total category sales price elasticities first decrease in absolute value, but then ultimately increase if the product in question faces the decline phase of the product life cycle (due to competitive substitutes or changes in tastes, etc.). As an interesting artifact of the methodology, the paper also shows how the Bass model can easily be modified to account for total category sales (first plus repeat purchases) and that, in the limit, the Bass model converges to stochastic repeat purchase models (bridging two radically different modelling traditions). If unadjusted, the Bass model applied to sales data is grossly misspecified when the time series studied exceeds 5 to 10 years for consumer durables.