The first vector $ M_{i} $ represents the product development strategies, i.e., vertical differentiation in pixel counts, horizontal differentiation, and miniaturization. Period1 (Period2) denotes a dummy variable for the years 1997-2000 (or 2001-2005, respectively) which takes on the value of unity if a model is introduced within that period. These dummies are related to the hypothesis testing whether DSCs were dominated by vertical differentiation in the late 1990s and whether horizontal differentiation prevailed after 2001. We expected negative signs for the coefficients of $ M_{i} $ in Period1, especially for coefficients of the element of vertical differentiation in pixel and horizontal differentiation. Conversely, we anticipated positive signs for the coefficient of the element of horizontal differentiation in Period2. However, we expected negative signs for the coefficient of the element of miniaturization in Period2.

The column vector $ X_{i} = (pixel, zoom, cpd, weight) $ represents technical profiles. These elements are transformed by a Box-Cox transformation with the parameter $ \lambda $ . The column vector $ Z_{i} = (lcd, depth, fstop, fd, power, vr, water) $ presents technical profile dummies. $ D_{i}^{f} $ are firm dummies and we take the base firm as Sony. $ D_{i}^{t} $ represents year dummies; we take the base year as 1997. $ \alpha $ is a constant term. We adjust for possible measurement bias due to price observation lags by using a dummy variable pld that takes on the value of one if the transaction price is observed with no less than a six-month lag.

### 4.3 Estimation Results

Table 6 shows the estimation results. We perform likelihood ratio tests on three standard functional forms (i.e. linear, semi-log, and log-log models). The tests indicate that the three functional forms can be rejected at a 1% significance level, which supports a both-side Box-Cox transformation regression model as our basic specification.

The first strategic variable regarding vertical differentiation in pixel counts for the years 1997-2000 is statistically significant at 5% level and the coefficient has negative sign as expected. On the other hand, for the years 2001-2005 this strategic variable is statistically significant at 1% level and the coefficient has positive sign. This appears to be puzzling. However, this should make lower price differentials between product generations. These results provide support our hypothesis that although regular upgrades of image resolution constitutes the most important factor that enables high introductory prices for 1997-2000, higher pixel models are priced lower from 2001.

The second strategic variable concerning horizontal differentiation for the years 1997-2000 is statistically significant at a 5% level and the sign of this coefficient is negative. In contrast, this strategic variable is statistically significant at a 1% level and has positive coefficient for the years 2001-2005. These results are consistent with our hypothesis that the increase in horizontal differentiation raises the price of each newly introduced high-end model.

The third strategic variable regarding miniaturization for the years 1997-2000 has no explanatory power. However, for the years 2001-2005, this strategic variable is statistically significant at a 1% level and the coefficient has negative