Pricing decisions during inter-generational product transition

Hongmin Li, Stephen C. Graves

Research output: Contribution to journalArticle

24 Citations (Scopus)

Abstract

How should companies price products during an inter-generational transition? High uncertainty in a new product introduction often leads to extreme cases of demand and supply mismatches. Pricing is an effective tool to either prevent or alleviate these problems. We study the optimal pricing decisions in the context of a product transition in which a new-generation product replaces an old one. We formulate the dynamic pricing problem and derive the optimal prices for both the old and new products. Our analysis sheds light on the pattern of the optimal prices for the two products during the transition and on how product replacement, along with several other dynamics including substitution, external competition, scarcity, and inventory, affect the optimal prices. We also determine the optimal initial inventory for each product and discuss a heuristic method.

Original languageEnglish (US)
Pages (from-to)14-28
Number of pages15
JournalProduction and Operations Management
Volume21
Issue number1
DOIs
StatePublished - Jan 2012

Fingerprint

Costs
Heuristic methods
Substitution reactions
Pricing decisions
Industry
Uncertainty
Mismatch
Substitution
Dynamic pricing
Scarcity
New product introduction
Heuristics
Replacement
Demand and supply
Pricing
Optimal pricing
New products

Keywords

  • dynamic pricing
  • multinomial logit model
  • new product introduction
  • product transition

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering
  • Management Science and Operations Research
  • Management of Technology and Innovation

Cite this

Pricing decisions during inter-generational product transition. / Li, Hongmin; Graves, Stephen C.

In: Production and Operations Management, Vol. 21, No. 1, 01.2012, p. 14-28.

Research output: Contribution to journalArticle

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