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On the Modelling of Price Effects in the Diffusion of Optional Contingent Products

In: Games in Management Science

Author

Listed:
  • Guiomar Martín-Herrán

    (Facultad de Ciencias Económicas y Empresariales, Universidad de Valladolid)

  • Sihem Taboubi

    (GERAD and HEC Montréal)

Abstract

In this chapter, we study the pricing strategies of firms in a multi-product diffusion model where we use a new formalization of the price effects. More particularly, we introduce the impact of prices on one of the factors that affect the diffusion of new products: the innovation coefficient. By doing so, we relax one of the hypotheses in the existing literature stating that this rate is constant. In order to assess the impact of this functional form on the pricing policies of firms selling optional contingent products, we use our model to study two scenarios already investigated in the multiplicative form model suggested by Mahajan and Muller (M&M). We follow a “logical experimentation” perspective by computing and comparing the results of three models: (1) The M&M model, (2) a modified version of M&M where the planning horizon is infinite, and (3) our model, where the new formalization of the innovation effect is introduced. This perspective allows us to attribute the differences in results to either the length of the planning horizon or to our model’s formalization. Besides its contribution to the literature on pricing and diffusion, this paper highlights the sensitivity of results to the hypothesis used in product diffusion modelling and could explain the mixed results obtained in the empirical validations of diffusion models.

Suggested Citation

  • Guiomar Martín-Herrán & Sihem Taboubi, 2020. "On the Modelling of Price Effects in the Diffusion of Optional Contingent Products," International Series in Operations Research & Management Science, in: Pierre-Olivier Pineau & Simon Sigué & Sihem Taboubi (ed.), Games in Management Science, pages 15-39, Springer.
    • Handle: RePEc:spr:isochp:978-3-030-19107-8_2
    DOI: 10.1007/978-3-030-19107-8_2
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    Cited by:

    1. Ghobadi, Somayeh Najafi- & Bagherinejad, Jafar & Taleizadeh, Ata Allah, 2021. "A two-generation new product model by considering forward-looking customers: Dynamic pricing and advertising optimization," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    2. Pazoki, Mostafa & Samarghandi, Hamed, 2021. "Word-Of-Mouth and estimating demand based on network structure and epidemic models," European Journal of Operational Research, Elsevier, vol. 291(1), pages 323-334.

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