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New and modernized products and inflation

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  • Michał Brzozowski

Abstract

The purpose of the article is to investigate, both from the theoretical and empirical side, the influence of inflation upon the share in the market of new and modernized products. For this purpose a theoretical model was constructed exposing the meaning of the product's price to signal its quality. Inflation causes the variability of relative prices and reduces the stock of information conveyed by the mediation of the price-signal. Together with the growth of inflation the consumers are willing to bear the higher costs of collecting information about the motions of relative prices and correctly read the information contained in the high price signalling quality. As a result the sales of new and modernized products is lower in conditions of low inflation, but increases when inflation is high we observe nonlinearity of the dependence between the share in the market of product innovation and the rate of price increase. Conclusions from the theoretical model find confirmation in empirical research carried out with the use of data for Poland covering 22 sections of the processing industry during the period 1995-1999.

Suggested Citation

  • Michał Brzozowski, 2001. "New and modernized products and inflation," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 3.
    • Handle: RePEc:eko:ekoeko:3_135
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    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/419
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