1 FORESCATING HOME APPLIANCES SALES: INCORPORATING ADOPTION AND REPLACEMENT 1 Viviana Fernandez* Assistant Professor Department of Industrial Engineering University of Chile Postal : Avenida República 701 Santiago-Chile E-mail : vfernand@dii.uchile.cl Abstract Empirical research on diffusion of consumer durable goods have mostly focused on adoption disregarding the importance of replacement sales. This article develops a demand model that incorporates both elements. Unlike previous studies, we allow adoption to depend on several economic variables (e.g., product price, disposable income, energy prices, and new private housing starts), and compute replacement sales from micro data rather than from an arbitrary survival function. We fit our model to U.S. data of electric heaters for 1946-1995, and show that sales forecasting can be improved by allowing adoption to depend on various economic factors. JEL Classification: D12, C53; Keywords: Adoption, Replacement, Consumer Durables 1 Introduction Consumer durable goods products that are not immediately consumed but provide a stream of services over a long period of timehave become standard items for a vast majority of households. 1 Electronic innovations have contributed over the years to an increasing inventory of durable goods. Indeed, virtually every household in the United States owns or has access to a refrigerator and a color television set. And, the penetration of items such as 1 Published in The Journal of International Consumer Marketing, Vol. 12(2), 1999, pages 39-61. * This paper is based upon chapters 4 and 5 of my dissertation at the University of California at Berkeley. I would like to thank the valuable comments of Paul Ruud, Jim Powell, Devravat Purohit, Kenneth Train, and Bronwyn Hall, professors of the University of California at Berkeley, and of Bryan Lincoln, researcher of the same university. The comments of two anonymous referees have contributed to improve a previous version of this paper. The usual disclaimer applies.