Price space and product demography: Evidence from the workstation industry, 1980–1996

Abstract

This study adds to the product innovation literature by emphasizing the important yet understudied role of price distribution in shaping product demography (i.e. new product introductions and exits). While prior research has focused on market niches in the technological and geographic spaces in order to explain product demography, price space has received very limited attention despite the important role of price in the market. We posit that product dynamics are largely shaped by the existing price distribution. More specifically, we argue that local density in price space determines both the likelihood of existing products exiting the market and the rate of new products entering it. Analyzing product exit and entry in the U.S. workstation industry from 1980 to 1996, we find that while price density increases an existing product’s exit rate, new products are also more likely to enter the niches where the price density is high. We also draw attention to internal price density within multiproduct firms, analyzing a product’s price distance from the other products launched by the same firm. We find that this type of internal price density decreases both existing products’ exit rate and new products’ entry likelihood. Our emphasis on price space contributes to the literature on product innovation and demography.