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Technical Note—A Note on Optimal Strategic Pricing of Technological Innovations

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Author Info

  • Frank M. Bass

    (School of Management, University of Texas at Dallas, Richardson, Texas 75080)

  • Alain V. Bultez

    (Faculté Universitaire Catholique de Mons (FUCAM, Belgium) and European Institute for Advanced Studies in Management, Brussels, Belgium)

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    Abstract

    The experience curve phenomenon of falling marginal costs associated with accumulated output or production experience has given rise to dynamic pricing models. Optimal pricing policies will depend upon the nature of the dynamic demand and cost functions. In this note we shall show that the demand function employed by Bass (Bass, F. M. 1980. The relationship between diffusion rates, experience curves, and demand elasticities for consumer durable technological innovations. (July) S51–S67.) when taken in conjunction with the experience curve cost function leads to a multiperiod pricing strategy which is always less than the myopically optimal price. Further, we present a dynamic programming algorithm for the multiperiod strategy in which we have explored the effects on discounted profits of myopic pricing versus multiperiod pricing. The results of this comparison may, to some, be somewhat surprising and may have managerial significance.

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    File URL: http://dx.doi.org/10.1287/mksc.1.4.371
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 1 (1982)
    Issue (Month): 4 ()
    Pages: 371-378

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    Handle: RePEc:inm:ormksc:v:1:y:1982:i:4:p:371-378

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    Related research

    Keywords: pricing-technological innovations; diffusion; experience curve;

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    Cited by:
    1. Parker, Philip M. & Sarvary, Miklos, 1997. "Formulating dynamic strategies using decision calculus," European Journal of Operational Research, Elsevier, vol. 98(3), pages 542-554, May.
    2. Benchekroun, Hassan & Martín-Herrán, Guiomar & Taboubi, Sihem, 2009. "Could myopic pricing be a strategic choice in marketing channels? A game theoretic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 33(9), pages 1699-1718, September.
    3. Hernández-Mireles, C. & Fok, D. & Franses, Ph.H.B.F., 2008. "The Triggers, Timing and Speed of New Product Price Landings," ERIM Report Series Research in Management ERS-2008-044-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    4. Martín-Herrán, Guiomar & Taboubi, Sihem & Zaccour, Georges, 2012. "Dual role of price and myopia in a marketing channel," European Journal of Operational Research, Elsevier, vol. 219(2), pages 284-295.
    5. Meade, Nigel & Islam, Towhidul, 2006. "Modelling and forecasting the diffusion of innovation - A 25-year review," International Journal of Forecasting, Elsevier, vol. 22(3), pages 519-545.
    6. Collantes, Gustavo, 2005. "Foreseeing The Market For Hydrogen Fuel-Cell Vehicles: Stakeholders’ Perspectives And Models Of New Technology Diffusion," Institute of Transportation Studies, Working Paper Series qt1dt4555z, Institute of Transportation Studies, UC Davis.
    7. Collantes, Gustavo O, 2005. "Foreseeing the Market for Hydrogen Fuel-Cell Vehicles: Stakeholders' Perspectives and Models of New Technology Diffusion," Institute of Transportation Studies, Working Paper Series qt8918f70m, Institute of Transportation Studies, UC Davis.
    8. Jorgensen, Steffen & Zaccour, Georges, 1999. "Price subsidies and guaranteed buys of a new technology," European Journal of Operational Research, Elsevier, vol. 114(2), pages 338-345, April.

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