Factor Analysis of Price Declines in the Digital Device Industry - Why Commoditization Occurs Under Conditions of Strong Demand?-

In the digital device industry, reports are appearing of the difficulty to capture profits under conditions of rapidly declining prices. Commoditization refers to the phenomenon where prices are declining so rapidly that market competitors are unable to earn a reasonable profit even though the market is expanding and there is strong demand. This sort of commoditization can be observed in many digital device industries, but in this paper, by taking up digital still camera market, a representative digital product, and analyzing the specifications and prices of approximately 560 models brought to market from 1995 to 2003, we demonstrate that a rapid decline in price is occurring, and reveal their causes. Our analysis reveals that the modules used in digital camera designs are remarkably uniform, the industry is becoming horizontally specialized, due to new market entrants developing similar platforms made up of components with the same specifications, and price declines are occurring because product specifications between competing companies are becoming homogenous.