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Dynamic pricing rule and R&D

Author

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  • Régis Chenavaz

    () (ESG Management School)

Abstract

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.

Suggested Citation

  • Régis Chenavaz, 2011. "Dynamic pricing rule and R&D," Economics Bulletin, AccessEcon, vol. 31(3), pages 2229-2236.
  • Handle: RePEc:ebl:ecbull:eb-11-00392
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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P202.pdf
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    References listed on IDEAS

    as
    1. Sahal, Devendra, 1985. "Technological guideposts and innovation avenues," Research Policy, Elsevier, vol. 14(2), pages 61-82, April.
    2. 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.
    3. 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.
    4. 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.
    5. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
    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. Shlomo Kalish, 1983. "Monopolist Pricing with Dynamic Demand and Production Cost," Marketing Science, INFORMS, vol. 2(2), pages 135-159.
    8. 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.
    9. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Chenavaz, Régis, 2016. "Dynamic pricing with reference price dependence," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 10, pages 1-17.
    2. Julien Berthoumieu & Viola Lamani, 2016. "Vertical Differentiation, Uncertainty, Product R&D and Policy Instruments in a North-South Duopoly," Working Papers hal-01285559, HAL.
    3. Saha, Souresh, 2014. "Firm's objective function and product and process R&D," Economic Modelling, Elsevier, vol. 36(C), pages 484-494.
    4. Pan, Xiaojun & Li, Shoude, 2016. "Dynamic optimal control of process–product innovation with learning by doing," European Journal of Operational Research, Elsevier, vol. 248(1), pages 136-145.
    5. Liu, Guowei & Zhang, Jianxiong & Tang, Wansheng, 2015. "Strategic transfer pricing in a marketing–operations interface with quality level and advertising dependent goodwill," Omega, Elsevier, vol. 56(C), pages 1-15.

    More about this item

    Keywords

    Dynamic pricing; R&D; optimal control;

    JEL classification:

    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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