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Dynamic pricing, product and process innovation

  • Chenavaz, Régis

The question of simultaneous dynamic pricing, product and process investment policies is crucial for manufacturing and high-tech industries. This paper models these policies in an optimal control setting. On the supply side, the firm sets prices, product and process investment levels over time. On the demand side, current demand depends on price and quality. Under an additive separable demand function, dynamic pricing increases with quality and cost. Therefore, both product innovation and process innovation impact the pricing policy. Under a multiplicative separable demand function, dynamic pricing policy follows the dynamic of production cost and is independent of the evolution of product quality. Thus, process innovation is the main determinant of a firm’s pricing policy over time and product innovation has no impact.

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File URL: http://www.sciencedirect.com/science/article/pii/S0377221712003566
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Article provided by Elsevier in its journal European Journal of Operational Research.

Volume (Year): 222 (2012)
Issue (Month): 3 ()
Pages: 553-557

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Handle: RePEc:eee:ejores:v:222:y:2012:i:3:p:553-557
Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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  1. 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.
  2. 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.
  3. Ron Adner & Daniel Levinthal, 2001. "Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation," Management Science, INFORMS, vol. 47(5), pages 611-628, May.
  4. L. Lambertini & A. Mantovani, 2005. "Process and Product Innovation by a Multiproduct Monopolist: A Dynamic Approach," Working Papers 551, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. 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.
  6. Dosi, Giovanni, 1982. "Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change," Research Policy, Elsevier, vol. 11(3), pages 147-162, June.
  7. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
  8. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
  9. Shlomo Kalish, 1983. "Monopolist Pricing with Dynamic Demand and Production Cost," Marketing Science, INFORMS, vol. 2(2), pages 135-159.
  10. Sahal, Devendra, 1985. "Technological guideposts and innovation avenues," Research Policy, Elsevier, vol. 14(2), pages 61-82, April.
  11. repec:cai:reidbu:rei_135_0089 is not listed on IDEAS
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