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An interactive market evolution model of related technological products

Authors Kim, Namwoon
Yen, Jerome
Tam, Kar Yan
Issue Date 1996-04
Summary Previous research on the market evolution model focused on new product forecasting for a single product category. Accordingly, this approach did not imply any interactions among separate but related product categories which could affect each other's market growth. Recently, however, fast growing and steadily changing market conditions (especially for technological product markets) make it necessary to develop a new strategic approach to analyze inter-category market dynamics. A possible new approach to these interactive market dynamics should be based on a broader concept of market including related multiple product categories which compete with or supplement each other's market demand. This paper suggests a simultaneous equation model which incorporates inter-category dynamics for technological product markets. It deals with the impact of price and performance of one product category on the market size of other categories which serve similar customer utilities. The model is empirically tested based on the sales and price data of three computing platforms: mainframe, mini, and micro computers, which dynamically interact within the "computing" market. The results show that sales of a given category of computing platform is significantly affected by the price and performance of the category itself and by those of the related categories as well. The model is validated by using two different price forms (actual and performance-adjusted) and comparing it with the existing models of similar purpose based on prediction accuracy. Managerial implications, contributions, and limitations of model are also discussed.
Language English
Format Working paper
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