 Stochastic competitive entries and dynamic pricingOlivier Rubel European Journal of Operational Research, 2013, vol. 231, issue 2, 381-392 Abstract: How should firms price new products when they do not know the timing, nor the nature of the next competitive entry? To guide managers’ pricing decisions in such contexts, we propose a dynamic pricing model with two types of randomly timed entry, i.e. imitative and innovative. The characterization of the equilibrium strategies reveals how optimal prices vary with the manager’s knowledge about the timing of future competitive entries. We show that price skimming is not always optimal when entry dates are unknown to managers. Everything else equal, we demonstrate that the randomness of competitive entries make forward looking managers to choose constant prices, even though the characteristics of the market would have justified skimming the demand in the normal course. Moreover, we show that the constant pricing policy remains optimal even when the incumbent’s optimal pricing strategy influences the probability of facing a competitive entry. Finally, we find that uncertainty does not necessarily hurt firms’ profits. Keywords: Optimal control; Pricing; Competitive entry; Stochastic differential games (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:231:y:2013:i:2:p:381-392 DOI: 10.1016/j.ejor.2013.05.014 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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