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Dynamic pricing rule and R&D

  • Régis Chenavaz

    ()

    (ESG Management School)

This article models the intertemporal behaviour of a firm that sets product prices and simultaneously invests in R&D. The model shows that the dynamic pricing rule follows the evolution of the production cost and is independent of the evolution of the product quality. Thus, process innovation, which reduces production cost, is the main determinant of a firm's pricing policy over time. Moreover, the firm invests more in process innovation over time at the expense of product innovation. Hence, the model explains the decrease in the cost of production and in the price of technological products throughout their life cycle.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P202.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2229-2236

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Handle: RePEc:ebl:ecbull:eb-11-00392
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  1. Sahal, Devendra, 1985. "Technological guideposts and innovation avenues," Research Policy, Elsevier, vol. 14(2), pages 61-82, April.
  2. Shlomo Kalish, 1983. "Monopolist Pricing with Dynamic Demand and Production Cost," Marketing Science, INFORMS, vol. 2(2), pages 135-159.
  3. Andrea Mantovani, 2006. "Complementarity between product and process innovation in a monopoly setting," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(3), pages 219-234.
  4. Régis Chenavaz & Benoît Leloup, 2011. "Les déterminants de la politique de tarification dynamique sur un marché biface. Le cas des logiciels de type client-serveur," Revue d'économie industrielle, De Boeck Université, vol. 0(3), pages 89-114.
  5. Voros, Jozsef, 2006. "The dynamics of price, quality and productivity improvement decisions," European Journal of Operational Research, Elsevier, vol. 170(3), pages 809-823, May.
  6. Teng, Jinn-Tsair & Thompson, Gerald L., 1996. "Optimal strategies for general price-quality decision models of new products with learning production costs," European Journal of Operational Research, Elsevier, vol. 93(3), pages 476-489, September.
  7. Lambertini, Luca & Mantovani, Andrea, 2009. "Process and product innovation by a multiproduct monopolist: A dynamic approach," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 508-518, July.
  8. Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter.
  9. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
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