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Research Details

Measuring Benefits from New Products in Markets with Information Frictions

Abstract

I study how much consumers benefit from new products in markets with information frictions. I analyze new products in the U.S. hard drive market, a textbook example of a market with ample product innovation. Using unique click-stream data, I measure the magnitude of two frictions – limited consideration and costly search – and show that both play a crucial role in shaping consumer demand in this market. Omitting these frictions from the analysis leads researchers to underestimate the consumer surplus from new hard drives, as it appears that consumers do not value the combinations of attributes these hard drives offer. Partly eliminating frictions from this market, either through firms' marketing efforts or market-wide transparency initiatives, can substantially enhance consumers' ability to benefit from newly introduced hard drives.

Type

Working Paper

Author(s)

Ilya Morozov

Date Published

2021

Citations

Morozov, Ilya. 2021. Measuring Benefits from New Products in Markets with Information Frictions.

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