A Triple Hazard Model for Price and Sales Crashes of New High-Technology Products

Abstract

The author propose a triple hazard model to analyze a phenomenon that occurs for information and high-technology new products that face short life cycles: the sales crash, the price crash, and the sales recovery. The model can untangle three important sources of variation in these interdependent events: i) lagged-event causality, ii) heterogeneity due to observed factors, and iii) heterogeneity due to unobserved (and possibly) correlated factors.Results suggest that the price crash involves a 23% drop in the introductory price. The sales crash amounts to 60% drop in peak introductory unit sales. The occurrence of a price crash significantly decreases the hazard of a sales crash whereas the occurrence of a sales crash significantly increases the hazard of a price crash. The latter effect is significantly stronger than the former. The price crash significantly increases the hazard rate of a sales recovery whereas the sales recovery has a positive but insignificant effect on the occurrence of a price crash. The findings and model have important implications for managers of information and technology new products.