Marketing Science · 1983 · 383 citations · 16 references
MarketingEconomicsDynamic PricingApplied EconomicsDynamic DemandPricing PolicyPrice FormationNew ProductBusinessEconomic AnalysisMonopolistic CompetitionSaturation EffectsSaturation FactorMarket PowerMarket DesignFinanceMicroeconomicsOperations Research
The paper studies dynamic pricing of a new product by a monopolist maximizing discounted profits, noting that cost and demand depend on cumulative production, making the problem inherently dynamic. The study develops a general framework for dynamic monopolist pricing that subsumes prior results and yields new insights. The model assumes a learning‑curve cost decline and a demand that depends on price and cumulative sales, capturing word‑of‑mouth and saturation, and the authors characterize the resulting price path under various scenarios. The analysis shows that learning‑curve and word‑of‑mouth effects lower optimal prices relative to immediate revenue maximization, whereas saturation raises them, and the resulting price path is shaped by these factors and the discount rate.
This paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream. The interdependency of cost and demand on cumulative production makes the problem inherently dynamic. Cost is assumed to be declining with cumulative production (learning curve effect), while demand is a function of price and cumulative sales, representing word-of-mouth and saturation effects. The paper addresses this problem in a general framework that includes several previous results as special cases, and provides new insights in other situations. While the learning curve and word-of-mouth effect cause prices to be lower than the price that maximizes immediate revenues, the saturation factor has the opposite effect. The price path over time is affected by these factors and the interest rate. We characterize the price path under several different situations and interpret the results for policy guidelines.
16
A New Product Growth for Model Consumer Durables
Frank M. Bass · Management Science · 2004 · 2.4K citations
The Learning Curve and Competition
A. Michael Spence · The Bell Journal of Economics · 1981 · 841 citations
Education, Endogenous Growth Theory, Industrial Organization +20
Product differentiation advantages of pioneering brands
Richard Schmalensee · American Economic Review · 1980 · 749 citations
Dynamic Price Models for New-Product Planning
B.B. Robinson, Chet Lakhani · Management Science · 1975 · 569 citations
Classic Marginal Pricing, Market Design, Dynamic Economics +19
Advertising and the Diffusion of New Products
Dan Horsky, Leonard S. Simon · Marketing Science · 1983 · 464 citations