Modeling diffusion of multi-generational LCD TVs while considering generation-specific price effects and consumer behaviors

Abstract

An effective diffusion model characterized by the technology-induced function diversification and cost reductions can be developed to reflect whether competition exists among multiple generations of technology and to interpret how price reductions stimulate consumption. New technology can enhance the production skill levels of LCD TV manufacturing, enabling successive generation of LCD TV to become larger-sized than the previous generation, reducing the overall cost in manufacturing process and resulting in the price reduction of LCD TVs. However, previous diffusive predictions of LCD TVs using conventional multi-generational models ignore the price effect on market potentials and generational substitutions, so a novel generation-specific multi-generational model for the first time incorporating heterogeneous price elasticity and consumer behaviors across various LCD TV sizes is constructed in this work. This study applies nonlinear least square method to simulate the parameters of our modified model and further compares the accuracy between our modified model and the existing models. Analytical results indicate that price reduction strongly correlates with LCD TV sales, implying that price reductions increase the market potential of each LCD TV generation. Our modified model performs superior to the conventional multi-generational model in terms of predicting future shipment orbits of 26-, 42-, and 46-in. LCD TVs. (C) 2013 Elsevier Ltd. All rights reserved.