The Triggers, Timing and Speed of New Product Price Landings
AbstractMany high-tech products and durable goods exhibit exactly one significant price cut some time after their launch. We call this sudden transition from high to low prices the price landing. In this paper we present a new model that describes two important features of price landings: their timing and their speed.Prior literature suggests that prices might be driven by sales, product line pricing, competitorâ€™s sales or simply by time. We propose a model using mixture components that identifies which of these explanations is the most likely trigger of price landings. We define triggers as thresholds after which prices are significantly cut. In addition, price landings might differ across products and therefore we model their heterogeneity with a hierarchical structure that depends mainly on firm, product type and seasonal effects.We estimate our model parameters applying Bayesian methodology and we use a rich dataset containing the sales and prices of 1195 newly released video-games (VGâ€™s). In contrast with previous literature, we find that competition and time itself are the main triggers of price landings while past sales and product line are less likely triggers. Moreover, we find substantial heterogeneity in the timing and speed of price landing across firms and product types.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2008-044-MKT.
Date of creation: 22 Jul 2008
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pricing; new products; pricing models;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-14 (All new papers)
- NEP-COM-2008-08-14 (Industrial Competition)
- NEP-IND-2008-08-14 (Industrial Organization)
- NEP-MIC-2008-08-14 (Microeconomics)
- NEP-MKT-2008-08-14 (Marketing)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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