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Ford’S Model-T: Pricing Over The Product’S Life Cycle

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  • RAMON CASADESÚS-MASANELL

    (J.L. Kellogg Graduate School of Management. Northwestern University. Departments of Managerial Economics and Decision Sciences and Management and Strategy.)

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    Abstract

    The pricing decisions monopolistic firms make over time are determined to a large extent by the complex interplay of two distinct sets of elements: demand- and supply-based considerations. Demand factors include the possibilities of (a) exercising dynamic price discrimination, and (b) enhancing information diffusion about the product’s characteristics. The main cost (i.e., supply) element influencing pricing over the Product Life Cycle is the possibility to exploit learning economies. Although these two sets of factors — demand and supply — are inter-linked in complex ways, I will propose a methodology to separate them. I will apply this procedure to the case of Ford’s Model- T. We will be able to disentangle by how much demand issues (as opposed to cost based factors) affected the level and slope of the observed price sequence. I will also point out some issues regarding experience curve estimation and will outline a technique that allows for endogenous generation of sales and unit cost predictions.

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    File URL: http://eacc10.puc.cl/files/ABT/Contenidos/Vol-1-N2/1%20Casadesus.pdf
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    Bibliographic Info

    Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

    Volume (Year): 1 (1998)
    Issue (Month): 2 ()
    Pages: 143-165

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    Handle: RePEc:pch:abante:v:1:y:1998:i:2:p:143-165

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    Related research

    Keywords: Product Life Cycle; Experience/Learning Economies; Pricing;

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    1. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
    2. Bass, Frank M, 1980. "The Relationship between Diffusion Rates, Experience Curves, and Demand Elasticities for Consumer Durable Technological Innovations," The Journal of Business, University of Chicago Press, vol. 53(3), pages S51-67, July.
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