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Pricing for a Durable-Goods Monopolist Under Rapid Sequential Innovation

Author

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  • Laura J. Kornish

    (The Fuqua School of Business, Duke University, Box 90120, Durham, North Carolina 27708-0120)

Abstract

A durable-goods monopolist who will be introducing new and improved versions of his product must decide how to price his products, keeping in mind the relative attractiveness of the current and future products. Dhebar (1994) has shown that if technology is changing too quickly and the producer cannot credibly commit to future prices and quality, then no equilibrium strategy exists. That is, there is no credible strategy for the future product that the producer can commit to in the first period. We show that an equilibrium pricing strategy exists if the monopolist does not offer upgrade pricing, that is, special pricing to consumers who have bought an earlier version. The author shows the possible purchase patterns in equilibrium and derives the optimal pricing strategy.

Suggested Citation

  • Laura J. Kornish, 2001. "Pricing for a Durable-Goods Monopolist Under Rapid Sequential Innovation," Management Science, INFORMS, vol. 47(11), pages 1552-1561, November.
    • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:11:p:1552-1561
    DOI: 10.1287/mnsc.47.11.1552.10247
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    References listed on IDEAS

    as
    1. Anirudh Dhebar, 1994. "Durable-Goods Monopolists, Rational Consumers, and Improving Products," Marketing Science, INFORMS, vol. 13(1), pages 100-120.
    2. K. Sridhar Moorthy & I. P. L. Png, 1992. "Market Segmentation, Cannibalization, and the Timing of Product Introductions," Management Science, INFORMS, vol. 38(3), pages 345-359, March.
    Full references (including those not matched with items on IDEAS)

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