Product Upgrades and Posted Prices

Mustafa Dogan (mudogan@sas.upenn.edu.)
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Mustafa Dogan: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, 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.

Keywords: durable goods; product upgrades; commitment; posted prices; dynamic mechanism design (search for similar items in EconPapers)
JEL-codes: D42 D82 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-04-28
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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