Essays on dynamic demand, pricing and investment
My dissertation develops and applies empirical structural models to study consumers’ dynamic adoption of durable goods, and firms’ dynamic research and development (R&D) investment and pricing strategies. In Chapter 2, I study consumer purchase dynamics for a new technology good, the digital single-lens-reflex (DSLR) camera, where consumer learning and switching costs across brands are present. Using a unique dataset that tracks individual DSLR camera ownership history, I find that low-end DSLR cameras are gateway products that most consumers buy initially. When some consumers choose to repurchase, they are more likely to buy high-end DSLR cameras from the same brand as the initial purchases. Combining individual camera ownership data with aggregate sales data, I develop and estimate a dynamic demand model that incorporates consumer learning and switching costs. The estimated demand model implies a dynamic complementary relationship between high- and low-end products that are produced by the same firm. In Chapter 3, I further empirically investigate the influence of consumer purchase dynamics on forward-looking firms’ pricing strategies. Supply-side simulations imply that firms have incentives to invest in their customer bases using low-end products and to harvest the resolved uncertainty of valuation and switching costs using high-end products. In Chapter 4, I explore the nature of uncertainty in innovation production through firms’ R&D investment. Utilizing a rich dataset that tracks Spanish manufacture firms’ R&D activities and innovation outcomes for up to 17 years, I build and estimate a dynamic model of firms’ R&D investment incorporates the uncertainties in innovation.