The economics of innovation
By Liz Warren-Pederson
Eller associate professor of economics Gautam Gowrisankaran awarded a grant from the National Science Foundation.
The accelerating pace of innovation — particularly in durable goods industries — has challenged economists to uncover new modeling methods to predict performance and guide policy. Eller associate professor of economics Gautam Gowrisankaran, a McCoy/Rogers Fellow, was recently awarded a three-year, $207,164 grant from the National Science Foundation (NSF) to fund an ongoing project exploring those methods with Marc Rysman of Boston University.
The pair is focused on understanding the dynamics of pricing in the consumer electronics market, specifically DVD players, digital camcorders, and digital cameras. Their work is pioneering new methods for solving dynamic models of consumers’ demand and firms’ supply decisions in these markets.
“Consumers in these markets often delay purchases in anticipation of future price decreases and quality increases,” Gowrisankaran explains. “It makes sense for a firm to begin by pricing a product high, then lowering the price over time.” This strategy allows the firm to capitalize on the consumers who can’t wait — the early adopters — as well as the people who Gowrisankaran says “like, but don’t love” a product, the ones who wait and buy it later.