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Optimal Strategic Pricing of Reproducible Consumer Products

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Author Info

  • Fernando Nascimento

    (Catholic University of Portugal, Lisbon, Portugal)

  • Wilfried R. Vanhonacker

    (Graduate School of Business, Columbia University, New York, New York 10027)

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    Abstract

    This paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction (e.g., computer software). As copy piracy results in an opportunity loss, its adverse effect on profits needs to be incorporated in strategic decisions such as pricing. Using a dual diffusion model which parsimoniously describes sales and copying, and employing control theory methodology, optimal price trajectories are derived for the period of monopoly. The results indicate that (a) in absence of any protection, skimming pricing strategies are generally optimal, and (b) copy protection is warranted only when sales diffuse much faster than copying and the protection technology does not significantly raise the marginal production cost.

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    File URL: http://dx.doi.org/10.1287/mnsc.34.8.921
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 34 (1988)
    Issue (Month): 8 (August)
    Pages: 921-937

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    Handle: RePEc:inm:ormnsc:v:34:y:1988:i:8:p:921-937

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    Related research

    Keywords: marketing; new products; pricing;

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    Cited by:
    1. Dyuti Banerjee & Ahmed Khalid & Jan-Egbert Sturm, 2005. "Socio-economic development and software piracy. An empirical assessment," Applied Economics, Taylor & Francis Journals, vol. 37(18), pages 2091-2097.
    2. Ahtiala, Pekka, 2006. "The optimal pricing of computer software and other products with high switching costs," International Review of Economics & Finance, Elsevier, vol. 15(2), pages 202-211.
    3. Alan E. Woodfield, 2006. "Piracy Accommodation and the Optimal Timing of Royalty Payments," Working Papers in Economics 06/01, University of Canterbury, Department of Economics and Finance.
    4. Khouja, Moutaz & Smith, Michael Alan, 2007. "Optimal pricing for information goods with piracy and saturation effect," European Journal of Operational Research, Elsevier, vol. 176(1), pages 482-497, January.
    5. D Banerjee, 2004. "Sensitivity To Tax Revenues and Optimal Anti-piracy Policy Instruments," Econometric Society 2004 Australasian Meetings 330, Econometric Society.
    6. Dyuti Banerjee, 2011. "On the sufficiency of regulatory enforcement in combating piracy," Journal of Regulatory Economics, Springer, vol. 40(2), pages 160-176, October.
    7. Ming-Fang Tsai & Jiunn-Rong Chiou, 2012. "Counterfeiting, enforcement and social welfare," Journal of Economics, Springer, vol. 107(1), pages 1-21, September.
    8. Arun Sundararajan, 2003. "Managing Digital Piracy: Pricing, Protection and Welfare," Law and Economics 0307001, EconWPA.
    9. Lydia L. Gan & Hian Chye Koh, 2005. "The Profiles of Software Pirates among Tertiary Institutions in Singapore," Economic Growth centre Working Paper Series 0508, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
    10. Banerjee, Dyuti S., 2003. "Software piracy: a strategic analysis and policy instruments," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 97-127, January.
    11. Tsai, Ming-Fang & Chiou, Jiunn-Rong & Lin, Chun-Hung A., 2012. "A model of counterfeiting: A duopoly approach," Japan and the World Economy, Elsevier, vol. 24(4), pages 283-291.
    12. Banerjee, Dyuti S., 2006. "Lobbying and commercial software piracy," European Journal of Political Economy, Elsevier, vol. 22(1), pages 139-155, March.
    13. Banerjee, Dyuti, 2013. "Effect of piracy on innovation in the presence of network externalities," Economic Modelling, Elsevier, vol. 33(C), pages 526-532.
    14. Dyuti S. Banerjee & Teyu Chou, 2007. "Copyright Protection And Innovation In The Presence Of Commercial Piracy," Development Research Unit Working Paper Series 05-07, Monash University, Department of Economics.

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