Persistence Effects in a Dynamic Discrete Choice Model : Application to Low-End Computer Servers

The paper introduces preference persistence into a dynamic discrete choice model of demand for durables. This persistence may arise, for example, when the products can be categorized into a small number of formats, which involve special knowledge, maintenance and upgrade. This feature induces an even stronger forward-looking behavior than a simple optimal stopping model displays. The model is estimated on a data set of low-end computer servers, where formats are represented by operating systems. The main contribution of the paper is that the model is better able to capture the principal tendencies in the segment than a static or a simple optimal stopping model. Furthermore, the model explains the tipping in the data without assuming any externality or anti-competitive producer behavior