Effect of Price on the Demand for Durables: Modeling, Estimation, and Findings

The focus of this article is on the effect of price on the adoption of durables. Most empirical research on the timing of adoption of new products has centered on the growth without explicitly incorporating any marketing-mix variables. Recently, some researchers have pursued ways of enriching the Bass model by including such controllable variables as price and advertising. Our interest in this article is to propose diffusion models that incorporate price. We use these models to study the price effect for four durable products. We report the estimation results and discuss the insights they provide. In particular, our empirical results suggest that price influences consumers' decisions on whether or not to buy and the diffusion process governs the timing of purchase given the decision to buy. Moreover, we find that the estimated coefficient of imitation in the Bass model is understated if price is inappropriately modeled.