Impact of R&D Activities on Pricing Behaviors with Product Turnover

This study empirically investigates the impact of research and development (R&D) activity on product turnover based on Point-of-Sales (POS) data. When measuring the inflation rate in an economy, the effects of quantitative, qualitative and volume changes must be isolated from changes in nominal sales figures. Changes in quality can be attributed to corporate R&D activities. In order to examine the effect of R&D activities on price changes in sales data, we construct a unique dataset by combining three datasets: weekly POS data, patent database (IIP Patent DB) data, and the Survey of Research and Development data. We use regression analysis with pooling and panel regression. We observe that while R&D activity may have a causal effect on price increases, a negative effect on the price of incumbent products is also observed. In addition, the relative prices of new and incumbent products tended to be higher for companies with active R&D expenditures. We suggest that continuous R&D is necessary to keep introducing high value products that place upward pressure on prices.