Abstract

http://ssrn.com/abstract=1211936
 
 

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Why, How and When Do Prices Land? Evidence from the Videogame Industry


Carlos H. Mireles


University of Texas at Austin; Erasmus Research Institute of Management (ERIM)

D. Fok


Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam

Philip Hans Franses


Erasmus University Rotterdam (EUR) - Department of Econometrics

22 2008 7,

ERIM Report Series Reference No. ERS-2008-041-MKT

Abstract:     
We examine how new products are priced over time, where we particularly look at sharp decreases in prices. New durable products like fashion, apparel, and videogames often show a significant price cut some time after the product's introduction. We call this a price landing and we examine its drivers. Theory predicts that competitive effects or underperforming sales are drivers for such price landings. To our knowledge, however, a systematic empirical study of price landing is unavailable. To examine the drivers of significant price cuts of a new product, we consider a rich dataset concerning sales and prices of 1195 newly released videogames. Prior literature suggests that own sales, competitive sales, competitive prices or simply time could be such drivers. In this paper we put these suggestions to an empirical test. We put forward a mixture model that covers a set of pricing equations with the price landing moment and its speed as key parameters. Second, in a hierarchical model we explain the apparent heterogeneity across the products. Our main finding is that it is not sales thresholds but competition and time itself that makes managers decide to seriously cut prices.

Number of Pages in PDF File: 61

Keywords: pricing, pricing models, new products

JEL Classification: C44, M31, M

working papers series





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Date posted: August 8, 2008  

Suggested Citation

H. Mireles, Carlos and Fok, D. and Franses, Philip Hans, Why, How and When Do Prices Land? Evidence from the Videogame Industry (22 2008 7,). ERIM Report Series Reference No. ERS-2008-041-MKT. Available at SSRN: http://ssrn.com/abstract=1211936

Contact Information

Carlos H. Mireles (Contact Author)
University of Texas at Austin ( email )
Austin, TX 78712
United States
Erasmus Research Institute of Management (ERIM) ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Dennis Fok
Econometric Institute - Erasmus University Rotterdam ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Erasmus Research Institute of Management (ERIM) ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1333 (Phone)
+31 10 408 9162 (Fax)
Tinbergen Institute Rotterdam ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Philip Hans Franses
Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)
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