Open AccessTechnical Note—A Note on Optimal Strategic Pricing of Technological Innovations
Author(s) -
Frank M. Bass,
Alain Bultez
Publication year - 1982
Publication title -
marketing science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 5.938
H-Index - 127
eISSN - 1526-548X
pISSN - 0732-2399
DOI - 10.1287/mksc.1.4.371
Subject(s) - dynamic pricing , economics , microeconomics , marginal cost , demand curve , function (biology) , dynamic programming , pricing schedule , production (economics) , econometrics , rational pricing , mathematical optimization , mathematics , capital asset pricing model , evolutionary biology , biology
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.pricing-technological innovations, diffusion, experience curve