Optimal Strategic Pricing of Reproducible Consumer Products

Fernando Nascimento and Wilfried R. Vanhonacker
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Fernando Nascimento: Catholic University of Portugal, Lisbon, Portugal
Wilfried R. Vanhonacker: Graduate School of Business, Columbia University, New York, New York 10027

Management Science, 1988, vol. 34, issue 8, 921-937

Abstract: This paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction (e.g., computer software). As copy piracy results in an opportunity loss, its adverse effect on profits needs to be incorporated in strategic decisions such as pricing. Using a dual diffusion model which parsimoniously describes sales and copying, and employing control theory methodology, optimal price trajectories are derived for the period of monopoly. The results indicate that (a) in absence of any protection, skimming pricing strategies are generally optimal, and (b) copy protection is warranted only when sales diffuse much faster than copying and the protection technology does not significantly raise the marginal production cost.

Keywords: marketing; new products; pricing (search for similar items in EconPapers)
Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:34:y:1988:i:8:p:921-937

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