TITLE

THE IMPACT OF COMPETITIVE ENTRY IN A DEVELOPING MARKET UPON DYNAMIC PRICING STRATEGIES

AUTHOR(S)
Eliashberg, Jehoshua; Jeuland, Abel P.
PUB. DATE
January 1986
SOURCE
Marketing Science;Winter86, Vol. 5 Issue 1, p20
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This paper analyzes dynamic pricing strategies for new durable goods in a two-period context. The first period is characterized as a monopoly market structure for a new product having dynamic demand. The second period begins when a new firm enters the market, and thereby changes the market structure to a duopolistic one. We begin by analyzing the pricing strategies of three types of monopolists: nonmyopic, myopic and "surprised". A nonmyopic monopolist is a first entrant who perfectly predicts the competitive entry. A myopic monopolist totally discounts the duopolistic period, and a "surprised" monopolist is a first entrant who has the longer time horizon of the nonmyopic monopolist, but who does not foresee the competitive entry. Our results indicate that the nature of these pricing strategies may be quite different. It is optimal for the nonmyopic firm to price its product at a higher level than the myopic monopolist. Additional results indicate under what circumstances the "surprised" monopolist will price too high during the monopoly period. The intuition behind these results is the fact that the myopic monopolist overestimates competition while the surprised monopolist underestimates it. We also characterize the nature of the dynamic equilibrium prices that will prevail during the competitive period. For example, we show that products having higher prices (because of cost differences) will exhibit a more rapid rate of price decline. Moreover, a discontinuity in the first entrant's pricing strategy, as a response to a second entry--which is often observed in the market place--is also captured by our model. Because these analyses are limited to situations where the time of second entry is predictable, a scenario that fits our model better would be the health-care equipment industry where a specified period of
ACCESSION #
4475170

 

Related Articles

  • THE INFLUENCE OF MONOPOLY ON PRODUCT INNOVATION: REJOINDER. Swan, Peter L. // Quarterly Journal of Economics;May72, Vol. 86 Issue 2, p346 

    Presents a reply to the article "The Influence of Monopoly on Product Innovation," which explains the monopoly controlling the entry of the entire range of a group of substitute products, by Lawrence J. White. Feasibility for a firm to enter an endeavor to break down the monopoly pricing for the...

  • Digital distribution and the prohibition of resale markets for information goods. Shiller, Benjamin // Quantitative Marketing & Economics;Dec2013, Vol. 11 Issue 4, p403 

    An existing theoretical literature finds that frictionless resale markets cannot reduce profits of monopolist producers of perfectly durable goods. This paper starts by presenting logical arguments suggesting this finding does not hold for goods consumers tire of with use, implying the impact of...

  • PRICING IN DURABLE GOODS MONOPOLY WITH DISCRETE DEMAND AND CHANGES OF INCOME. Nunes, Paulo Maƈãs // Actual Problems of Economics / Aktual'ni Problemi Ekonomìki;Sep2012, Vol. 135 Issue 9, p421 

    This paper shows, considering a model, two periods, discrete demand and two consumers with different levels of income and consequently different willingness to pay, that the Coase conjecture can fail, that is to say, price does not necessarily decrease over time. Maintaining the relationships...

  • CYCLIC PRICING BY A DURABLE GOODS MONOPOLIST. Conlisk, John; Gerstner, Eitan; Sobel, Joel // Quarterly Journal of Economics;Aug84, Vol. 99 Issue 3, p489 

    In the model of this paper a monopoly seller of a durable good holds periodic sales as a means of price discrimination. A new cohort of consumers enters the market in each period, interested in purchasing the good either immediately or after a delay. Within each cohort, consumers vary in their...

  • DURABLE-GOODS MONOPOLISTS, RATIONAL CONSUMERS, AND IMPROVING PRODUCTS. Dhebar, Anirudh // Marketing Science;Winter94, Vol. 13 Issue 1, p100 

    We consider the case of a monopolist supplying an improving durable product to a population that is heterogeneous in its valuation of product quality. In a two-period framework, we show that if consumers expect the product to improve in "present-value" terms, then intertemporal discrimination...

  • Product Selection, Fixed Costs, and Monopolistic Competition. Spence, Michael // Review of Economic Studies;Jun76, Vol. 43 Issue 2, p217 

    The article investigates the effects of fixed costs and monopolistic competition on the selection of products and product characteristics in a set of interacting markets. Its purpose is the implication of this type of market failure in the setting of multiple firms and interacting products. The...

  • Price Setting for Consumer Durables. Fel'dman, A.B. // Problems of Economics;Feb78, Vol. 20 Issue 10, p20 

    Discusses the dynamics of retail price setting of consumer durables catering to various sections of Soviet society. Factors considered in pricing; Relationship between retail price and production costs; Basis for determining the admissible retail price of an item; Operations for calculating the...

  • On durable goods monopolies and the Coase-Conjecture. Güth, Werner; Ritzberger, Klaus // Review of Economic Design;1998, Vol. 3 Issue 3, p215 

    Abstract. Consider the durable goods monopoly game with uniformly distributed consumers' valuations. To establish the Coase-Conjecture in this context takes an infinite time horizon and a negligible delay between market rounds. An infinite time horizon or patience of market participants alone...

  • Durable Goods Orders Jump 2.6% in March; Ex-Transportation Rise 2.0%. Siegel, Gary // Bond Buyer;4/25/2014, Vol. 123 Issue F316, p1 

    The article focuses on a report of the U.S. Commerce Department which states that the U.S. durable goods orders increased by 2.6 percent in March 2014 while the excluding transportation orders increased by two percent in the same period.

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sign out of this library

Other Topics