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Optimal Strategic Pricing of Reproducible Consumer Products

Author

Listed:
  • Fernando Nascimento

    (Catholic University of Portugal, Lisbon, Portugal)

  • Wilfried R. Vanhonacker

    (Graduate School of Business, Columbia University, New York, New York 10027)

Abstract

This paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction (e.g., computer software). As copy piracy results in an opportunity loss, its adverse effect on profits needs to be incorporated in strategic decisions such as pricing. Using a dual diffusion model which parsimoniously describes sales and copying, and employing control theory methodology, optimal price trajectories are derived for the period of monopoly. The results indicate that (a) in absence of any protection, skimming pricing strategies are generally optimal, and (b) copy protection is warranted only when sales diffuse much faster than copying and the protection technology does not significantly raise the marginal production cost.

Suggested Citation

  • Fernando Nascimento & Wilfried R. Vanhonacker, 1988. "Optimal Strategic Pricing of Reproducible Consumer Products," Management Science, INFORMS, vol. 34(8), pages 921-937, August.
  • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:8:p:921-937
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    File URL: http://dx.doi.org/10.1287/mnsc.34.8.921
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    Citations

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    Cited by:

    1. Ahtiala, Pekka, 2006. "The optimal pricing of computer software and other products with high switching costs," International Review of Economics & Finance, Elsevier, vol. 15(2), pages 202-211.
    2. D Banerjee, 2004. "Sensitivity To Tax Revenues and Optimal Anti-piracy Policy Instruments," Econometric Society 2004 Australasian Meetings 330, Econometric Society.
    3. Dyuti Banerjee, 2011. "On the sufficiency of regulatory enforcement in combating piracy," Journal of Regulatory Economics, Springer, vol. 40(2), pages 160-176, October.
    4. Ming-Fang Tsai & Jiunn-Rong Chiou, 2012. "Counterfeiting, enforcement and social welfare," Journal of Economics, Springer, vol. 107(1), pages 1-21, September.
    5. Banerjee, Dyuti S., 2003. "Software piracy: a strategic analysis and policy instruments," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 97-127, January.
    6. Banerjee, Dyuti S., 2006. "Lobbying and commercial software piracy," European Journal of Political Economy, Elsevier, vol. 22(1), pages 139-155, March.
    7. Dyuti S. Banerjee & Tanmoyee Banerjee (Chatterjee) & Ajitava Raychaudhuri, 2008. "Optimal Enforcement And Anti-Copying Strategies To Counter Copyright Infringement," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 519-535.
    8. Lydia L. Gan & Hian Chye Koh, 2005. "The Profiles of Software Pirates among Tertiary Institutions in Singapore," Economic Growth Centre Working Paper Series 0508, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    9. Banerjee, Dyuti, 2013. "Effect of piracy on innovation in the presence of network externalities," Economic Modelling, Elsevier, vol. 33(C), pages 526-532.
    10. Dyuti S. Banerjee, 2014. "Effectiveness of government anti-piracy enforcement policy: commitment versus non-commitment," Chapters,in: Handbook on the Economics of Copyright, chapter 15, pages 264-284 Edward Elgar Publishing.
    11. Dyuti S. Banerjee & Teyu Chou, 2007. "Copyright Protection And Innovation In The Presence Of Commercial Piracy," Monash Economics Working Papers 05-07, Monash University, Department of Economics.
    12. repec:bla:reviec:v:25:y:2017:i:2:p:233-261 is not listed on IDEAS
    13. Khouja, Moutaz & Smith, Michael Alan, 2007. "Optimal pricing for information goods with piracy and saturation effect," European Journal of Operational Research, Elsevier, vol. 176(1), pages 482-497, January.
    14. Tsai, Ming-Fang & Chiou, Jiunn-Rong & Lin, Chun-Hung A., 2012. "A model of counterfeiting: A duopoly approach," Japan and the World Economy, Elsevier, vol. 24(4), pages 283-291.
    15. repec:spr:joptap:v:123:y:2004:i:2:d:10.1007_s10957-004-5152-2 is not listed on IDEAS
    16. repec:pal:jorsoc:v:60:y:2009:i:3:d:10.1057_palgrave.jors.2602552 is not listed on IDEAS
    17. Bakos, Yannis & Brynjolfsson, Erik & Lichtman, Douglas, 1999. "Shared Information Goods," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 117-155, April.
    18. Arun Sundararajan, 2003. "Managing Digital Piracy: Pricing, Protection and Welfare," Law and Economics 0307001, EconWPA.
    19. Dyuti Banerjee & Ahmed Khalid & Jan-Egbert Sturm, 2005. "Socio-economic development and software piracy. An empirical assessment," Applied Economics, Taylor & Francis Journals, vol. 37(18), pages 2091-2097.
    20. Alan E. Woodfield, 2006. "Piracy Accommodation and the Optimal Timing of Royalty Payments," Working Papers in Economics 06/01, University of Canterbury, Department of Economics and Finance.

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    Keywords

    marketing; new products; pricing;

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