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Technical Note—A Note on Optimal Strategic Pricing of Technological Innovations

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  • Frank M. Bass

    (School of Management, University of Texas at Dallas, Richardson, Texas 75080)

  • Alain V. Bultez

    (Faculté Universitaire Catholique de Mons (FUCAM, Belgium) and European Institute for Advanced Studies in Management, Brussels, Belgium)

Abstract

The experience curve phenomenon of falling marginal costs associated with accumulated output or production experience has given rise to dynamic pricing models. Optimal pricing policies will depend upon the nature of the dynamic demand and cost functions. In this note we shall show that the demand function employed by Bass (Bass, F. M. 1980. The relationship between diffusion rates, experience curves, and demand elasticities for consumer durable technological innovations. (July) S51–S67.) when taken in conjunction with the experience curve cost function leads to a multiperiod pricing strategy which is always less than the myopically optimal price. Further, we present a dynamic programming algorithm for the multiperiod strategy in which we have explored the effects on discounted profits of myopic pricing versus multiperiod pricing. The results of this comparison may, to some, be somewhat surprising and may have managerial significance.

Suggested Citation

  • Frank M. Bass & Alain V. Bultez, 1982. "Technical Note—A Note on Optimal Strategic Pricing of Technological Innovations," Marketing Science, INFORMS, vol. 1(4), pages 371-378.
    • Handle: RePEc:inm:ormksc:v:1:y:1982:i:4:p:371-378
    DOI: 10.1287/mksc.1.4.371
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