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.
- Probabilistic dynamic programming
ASJC Scopus subject areas
- Modeling and Simulation
- Management Science and Operations Research
- Information Systems and Management