The Competitive Effects of a New Product Introduction: A Case Study
1 September 2002
By Dr. Gregory Leonard with Dr. Jerry Hausman
This paper by NERA Senior Vice President Dr. Gregory Leonard with MIT Professor of Economics Dr. Jerry Hausman analyzes the competitive effect of a new product introduction. The authors break the overall competitive effect into two parts: the decrease in the prices of existing products due to increased competition, and the benefit to consumers of having additional product variety. Using data from both before and after the introduction, they directly estimate the price effects and the additional variety effect. Then, using only the estimated post introduction demand structure, along with an assumed model of competition, they estimate the price effects indirectly. By comparing the 'indirect' and 'direct' estimates, Dr. Leonard and Dr. Hausman assess the validity of alternative models of competition for the industry.
Copyright 2002, Blackwell Publishers Ltd. All rights reserved. Abstract used by permission. Article first published in The Journal of Industrial Economics Volume L, No. 3, September 2002.
