Declining Demand and Product Quality: An Empirical Study of the Japanese PC Monitor Market

Author Name OTA Rui (Yokohama City University) / ZHANG Lili (Nissan Trading China Co., Ltd)
Creation Date/NO. April 2020 20-E-033
Research Project Evidence-based Policy Study on the Law and Economics of Market Quality
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As evinced by the dumping phenomenon caused by the rapid economic growth of developing countries, many markets in advanced economies have rapidly declined. In such declining markets, however, the price of domestic products has been increasing instead of decreasing. To understand price increases in a declining market due to the rush in imports of new products, this paper empirically investigates changes in product quality using POS data on PC monitors sold at major mass retailers in Japan (January 2009--December 2011). The paper utilizes the hedonic approach to estimate the impact of product features on price. As a result of calculating the Quality Index developed by Feenstra (1988) with the estimates, this paper demonstrates that the quality of Japanese PC monitors increased by 6.6% in 2010 (compared to the previous year) and 8.5% in 2011. The result shows that the price increase in a declining market can be explained by increasing product quality.