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Product Upgrades and Posted Prices

Author

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  • Mustafa Dogan_

    (Department of Economics, University of Pennsylvania)

Abstract

We consider the dynamic pricing problem of a durable good monopolist with full commitment power, when a new version of the good is expected at some point in the future. The new version of the good is superior to the existing one, bringing a higher ow utility. If the arrival is a stationary stochastic process, then the corresponding optimal price path is shown to be constant for both versions of the good, hence there is no delay on purchases and time is not used to discriminate over buyers, which is in line with the literature. However, if the arrival of the new version occurs at a commonly known deterministic date, then the optimal price path may be decreasing over time, resulting in delayed purchases. For both stochastic and deterministic arrival processes, posted prices is not the optimal mechanism, which on the other hand, involves into bundling of both new and old versions of the good and selling them only together.

Suggested Citation

  • Mustafa Dogan_, 2014. "Product Upgrades and Posted Prices," PIER Working Paper Archive 14-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:14-016
    as

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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/14-016.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    durable goods; product upgrades; commitment; posted prices; dynamic mechanism design;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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