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Marketing Letters

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01-06-2008

Technological advances in digital cameras: Welfare analysis on easy-to-use characteristics

Author: Junji Xiao

Published in: Marketing Letters | Issue 2/2008

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Abstract

This paper examines the characteristics attributed to the success of digital cameras by studying both the demand and the supply sides of the digital-camera market. A discrete choice model is employed to investigate consumer preferences over digital camera characteristics during the period 1996–1998. The empirical findings reveal that Sony’s ‘Easy-to-Use’ storage system contributes significantly to Sony’s demand advantage and profitability. Also, the welfare analysis demonstrates that ‘Easy-to-Use’ attributes significantly contribute to social welfare improvement.

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Resolution has been regarded as the most important feature for a digital camera in both business reports and academic researches. But the resolutions of Mavica cameras were not more than 0.307 mega pixel, while the average resolution in the market was 0.380, and the leading resolution even reached 1.22 mega pixels.

My sample covers the inception periods of the digital camera industry. Product diffusion theory tells us an innovation is first adopted by a selected group of buyers, called innovators. They may have more homogeneous tastes. A heterogeneous demand model is also estimated, but little variation in the results is generated. To simplify the consequent estimation, therefore, I assume the consumers are homogeneous.

I thank Randy Bucklin for his comments on this point.

Popular Photography, September 1998.

Compare Olympus D300L with 6 MB international memory versus D320L with 2 MB external flash memory.

These two new models were introduced in October 1997, but they are not equipped with much desirable characteristics. For instance, their resolutions are 0.307 and 0.115, respectively, and both of them do not carry zoom. From the cost function, therefore, they are supposed to be priced low, which is observed from the estimated price in Table 2. My model predicts they deserve large market share due to low price. Apparently, the estimated market share in Table 2 proves this prediction. On the whole, the low marginal cost and the dominant market share imply high profits for both models.

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Carranza, J. (2002). Durable goods demand with exogenous innovation: An empirical study of the digital photo cameras market. Ph.D. dissertation, Yale.

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Title: Technological advances in digital cameras: Welfare analysis on easy-to-use characteristics
Author: Junji Xiao
Publication date: 01-06-2008
Publisher: Springer US
Published in: Marketing Letters / Issue 2/2008
Print ISSN: 0923-0645
Electronic ISSN: 1573-059X
DOI: https://doi.org/10.1007/s11002-008-9033-6

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