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Pricing strategies in markets with dynamic elasticities

Author: Parker, Philip M. INSEAD Area: Marketing Series: Working Paper ; 91/46/MKT Publisher: Fontainebleau : INSEAD, 1991.Language: EnglishDescription: 11 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper approaches strategic pricing over the product life cycle while considering the impact of dynamic price elasticities. Extending the work of Simon (1979), a general optimal control formulation is proposed which relies on functional forms which have empirical foundations and can be calibrated in a managerial context. In addition to typical skimming and penetration strategies, dynamic elasticities can lead to "saw tooth" strategies; optimal prices may, for example, decrease, then increase, then decrease over the life cycle. Several normative results, based on numerical simulations, are presented and compared to those found in the literature
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This paper approaches strategic pricing over the product life cycle while considering the impact of dynamic price elasticities. Extending the work of Simon (1979), a general optimal control formulation is proposed which relies on functional forms which have empirical foundations and can be calibrated in a managerial context. In addition to typical skimming and penetration strategies, dynamic elasticities can lead to "saw tooth" strategies; optimal prices may, for example, decrease, then increase, then decrease over the life cycle. Several normative results, based on numerical simulations, are presented and compared to those found in the literature

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