Prices Over The Product Life Cycle: An Empirical Analysis

This paper explores the extent to which goods follow systematic pricing patterns over their life cycle. The theoretical literature, and anecdotal evidence, suggests that new products are often introduced at high prices which decline as the good ages while, older goods exit the market at a discount. The authors outline and apply a smoothing-spline approach to the estimation of life cycle pricing effects using data on two different types of goods; supermarket products (beer, canned soup and cereals) and high-tech goods (desktop and laptop computers, and personal digital assistants). They interpret these results within a simple conceptual framework and find evidence for the existence of significant life cycle pricing effects.