Model exit in a Vertically Differentiated Market: Interfirm Competition vs. Intrafirm Cannibalization in the Computer Hard Disk Drive Industry

Christopher S. Ruebeck, Lafayette College

Review of Industrial Organization February 2005 (volume 26, issue 1)
[Full paper, PDF] [dspace record


What characteristics of a product’s local market make its withdrawal more likely? This study investigates the importance of intrafirm “cannibalization” of a product’s demand by products manufactured by the same firm versus interfirm competition from others’products. While both forces impact product withdrawal, cannibalization has a more robust and significant effect. Hedonic price regressions also reveal higher discounting of older models’ quality-adjusted prices, strengthening the argument for caution when treating list prices as proxies for transaction prices.