Computer and Packaged Software

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Computer and Packaged Software

By | November 2011
Page 1 of 25
Journal of Business & Economic Studies, Vol. 16, No. 2, Fall 2010 Computers and Packaged Software: Necessary or Luxury Goods? Longitudinal Empirical Analysis and Its Implications Min Lu, Robert Morris University Steven Thompson, University of Richmond Yanbin Tu, Robert Morris University Abstract This study investigated the income elasticity of demand for computers and packaged software in the United States from 1992 to 2003. Using cointegration analysis with quarterly time series data, we found that computers and packaged software are necessary goods to private firms, luxury goods to households, and inferior goods to government agencies. By using flexible least squares, we showed that these income elasticities generally are stable over the time horizon. We found that while private firms represent the bulk of computer and packaged software sales, growth in household expenditure is the precursor to growth in the overall market. The extended analysis on IT and communication products and services also suggests broader IT products are luxury products to households. The managerial implications of our findings are discussed. Key Words: Income Elasticity, Necessary Goods, Luxury Goods, Cointegration, Flexible Least Square (FLS) JEL Classifications: D6/E5/O16 Introduction Organizations engaged in the manufacturing and sales of computers and packaged software and other IT products have been forced to confront a dynamic and challenging market place. The intensity of this competition is evidenced by rapidly falling prices over time, short product life cycles, and high rates of firm failure and consolidation. In this environment, the ability to attract and retain consumers, while maintaining reasonable profit margins, is critical to the success of any organization. Since price reductions have the potential to negatively impact revenue and profits, they should be performed judiciously so that the price is reduced by the smallest amount required to stimulate the desired level...