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Value Added to Reservation Prices

Author

Listed:
  • Jannett Highfill

    (Bradley University)

  • William J. Polley

    (Bradley University)

  • Robert C. Scott

    (Bradley University)

Abstract

Suppose a price setting firm knows the distribution of reservation prices its customers have for an existing product. Then suppose the firm introduces a product improvement, and it is able to quantitatively evaluate the increase in performance (e.g. time saved, capacity increased, etc.) for the new product as compared to the original one. The paper provides a general method for pricing the innovation and then focuses on the case of normally distributed reservation prices. This approach can explain pricing behavior that standard linear demand curve models do not easily explain.

Suggested Citation

  • Jannett Highfill & William J. Polley & Robert C. Scott, 2004. "Value Added to Reservation Prices," Journal of Economic Insight, Missouri Valley Economic Association, vol. 30(2), pages 27-49.
    • Handle: RePEc:mve:journl:v:30:y:2004:i:2:p:27-49
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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