Optimal pricing for a short life-cycle product when customer price-sensitivity varies over time

Technology products often experience a life-cycle demand pattern that resembles a diffusion process, with weak demand in the beginning and the end of the life cycle and high demand intensity in between. The customer price-sensitivity also changes over the life cycle of the product. We study the prespecified pricing decision for a product that exhibits such demand characteristics. In particular, we determine the optimal set of discrete prices and the times to switch from one price to another, when a limited number of price changes are allowed. Our study shows that the optimal prices and switching times show interesting patterns that depend on the product's demand pattern and the change in the customers' price sensitivity over the life cycle of the product.