Price elasticity and the growth of computer spending

The price of computers is a key factor in explaining the growth of computer spending. However, it remains unclear whether the price elasticity of the demand for computers is constant over time. Findings on the pattern of price elasticity will have important implications in the study of information technology (IT) innovation diffusion. To test the hypothesis of dynamic price elasticity, we extend existing growth models to include a price factor with different elasticity specifications. Nested specifications of three growth models were tested using spending data from 1955 to 1984 adjusted by a quality price index for computers. The results indicate that three out of four competing models depict dynamic price elasticity over the investigated period. A similar pattern is also observed when the models are estimated using more recent data on mainframe computer spending. Our results underscore the dynamic behavior of price sensitivity in computer spending over time. They offer a new perspective to study innovation attributes and to examine their impacts empirically over time. Implications for information systems (IS) management and IT suppliers are also discussed.