IDEAS home Printed from https://ideas.repec.org/p/pen/papers/14-016.html
   My bibliography  Save this paper

Product Upgrades and Posted Prices

Author

Listed:
  • Mustafa Dogan_

    () (Department of Economics, University of Pennsylvania)

Abstract

We consider the dynamic pricing problem of a durable good monopolist with full commitment power, when a new version of the good is expected at some point in the future. The new version of the good is superior to the existing one, bringing a higher ow utility. If the arrival is a stationary stochastic process, then the corresponding optimal price path is shown to be constant for both versions of the good, hence there is no delay on purchases and time is not used to discriminate over buyers, which is in line with the literature. However, if the arrival of the new version occurs at a commonly known deterministic date, then the optimal price path may be decreasing over time, resulting in delayed purchases. For both stochastic and deterministic arrival processes, posted prices is not the optimal mechanism, which on the other hand, involves into bundling of both new and old versions of the good and selling them only together.

Suggested Citation

  • Mustafa Dogan_, 2014. "Product Upgrades and Posted Prices," PIER Working Paper Archive 14-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:14-016
    as

    Download full text from publisher

    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/14-016.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Benhabib, Jess & Rustichini, Aldo, 1991. "Vintage capital, investment, and growth," Journal of Economic Theory, Elsevier, vol. 55(2), pages 323-339, December.
    2. Simon Board, 2008. "Durable-Goods Monopoly with Varying Demand," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 391-413.
    3. Peter L. Swan, 1970. "Market Structure and Technological Progress: The Influence of Monopoly on Product Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 84(4), pages 627-638.
    4. Simon Board & Andrzej Skrzypacz, 2016. "Revenue Management with Forward-Looking Buyers," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 1046-1087.
    5. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 729-749.
    6. Nancy L. Stokey, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 355-371.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    durable goods; product upgrades; commitment; posted prices; dynamic mechanism design;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pen:papers:14-016. 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: (Administrator). General contact details of provider: http://edirc.repec.org/data/deupaus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.