Dynamic pricing rule and R&D
AbstractThis article models the intertemporal behaviour of a firm that sets product prices and simultaneously invests in R&D. The model shows that the dynamic pricing rule follows the evolution of the production cost and is independent of the evolution of the product quality. Thus, process innovation, which reduces production cost, is the main determinant of a firm's pricing policy over time. Moreover, the firm invests more in process innovation over time at the expense of product innovation. Hence, the model explains the decrease in the cost of production and in the price of technological products throughout their life cycle.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 31 (2011)
Issue (Month): 3 ()
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Dynamic pricing; R&D; optimal control;
Find related papers by JEL classification:
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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- Lambertini, Luca & Mantovani, Andrea, 2009.
"Process and product innovation by a multiproduct monopolist: A dynamic approach,"
International Journal of Industrial Organization,
Elsevier, vol. 27(4), pages 508-518, July.
- L. Lambertini & A. Mantovani, 2005. "Process and Product Innovation by a Multiproduct Monopolist: A Dynamic Approach," Working Papers 551, Dipartimento Scienze Economiche, Universita' di Bologna.
- Teng, Jinn-Tsair & Thompson, Gerald L., 1996. "Optimal strategies for general price-quality decision models of new products with learning production costs," European Journal of Operational Research, Elsevier, vol. 93(3), pages 476-489, September.
- Voros, Jozsef, 2006. "The dynamics of price, quality and productivity improvement decisions," European Journal of Operational Research, Elsevier, vol. 170(3), pages 809-823, May.
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