Dynamic pricing rule and R&D

Régis Chenavaz

Economics Bulletin, 2011, vol. 31, issue 3, 2229-2236

Abstract: This article models the intertemporal behaviour of a firm that sets product prices and simultaneously invests in R&D. The model shows that the dynamic pricing rule follows the evolution of the production cost and is independent of the evolution of the product quality. Thus, process innovation, which reduces production cost, is the main determinant of a firm's pricing policy over time. Moreover, the firm invests more in process innovation over time at the expense of product innovation. Hence, the model explains the decrease in the cost of production and in the price of technological products throughout their life cycle.

Keywords: Dynamic pricing; R&D; optimal control (search for similar items in EconPapers)
JEL-codes: M2 O3 (search for similar items in EconPapers)
Date: 2011-08-04
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Citations: View citations in EconPapers (15)

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