Optimal pricing of a product with periodic enhancements

David Besanko*, Wayne L. Winston

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Consider a company whose customers may purchase annual (or periodic) updates of the product (the book of the year for an encyclopedia, for example). We determine how the profitability of the update affects the price of the company's main product (the encyclopedia). Our major result is that the product's price should be more than the 'myopic price' if and only if the profitability of the update is less than the profitability per potential customer. We also show that an increase in the profitability of the update decreases the price of the product, and we derive several other sensitivity results.

Original languageEnglish (US)
Pages (from-to)268-278
Number of pages11
JournalEuropean Journal of Operational Research
Volume55
Issue number2
DOIs
StatePublished - Nov 25 1991

Keywords

  • Probabilistic dynamic programming
  • pricing

ASJC Scopus subject areas

  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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