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Market effects of new product introduction: Evidence from the brew‐at‐home coffee market
Author(s) -
Gayle Philip G.,
Lin Ying
Publication year - 2022
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12474
Subject(s) - product (mathematics) , product proliferation , business , welfare , preference , consumer demand , sample (material) , economics , supply and demand , marketing , new product development , agricultural economics , commerce , microeconomics , product management , market economy , chemistry , geometry , mathematics , chromatography
Abstract The introduction of new products has always been an important source of economic development and improvement in consumer welfare. With retail coffee data spanning 5 years after the single‐cup brew coffee pods were introduced to grocery chains, this paper empirically studies the market effects of new product introduction in the brew‐at‐home coffee market. We use a structural model of demand and supply to capture the changes in consumers’ preference for this new product over time. The demand estimates suggest that consumers’ relative preference and willingness‐to‐pay for the new product grew substantially over the sample periods. The analysis reveals the extent to which the introduction and growing presence of the new product simultaneously expanded the relevant market and cannibalized the sales of pre‐existing substitute products (traditional auto‐drip brew coffee products). Furthermore, we quantify the annually expanding welfare gains of the average consumer attributable to the new product.