Monopolist Pricing with Dynamic Demand and Production Cost
This paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream. The interdependency of cost and demand on cumulative production makes the problem inherently dynamic. Cost is assumed to be declining with cumulative production (learning curve effect), while demand is a function of price and cumulative sales, representing word-of-mouth and saturation effects. The paper addresses this problem in a general framework that includes several previous results as special cases, and provides new insights in other situations. While the learning curve and word-of-mouth effect cause prices to be lower than the price that maximizes immediate revenues, the saturation factor has the opposite effect. The price path over time is affected by these factors and the interest rate. We characterize the price path under several different situations and interpret the results for policy guidelines.
Volume (Year): 2 (1983)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:2:y:1983:i:2:p:135-159. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.