Optimal Pricing Policy in the Presence of Experience Effects
affiliation not provided to SSRN
Masako N. Darrough
City University of New York - Baruch College - Stan Ross Department of Accountancy
Santa Clara University - Leavey School of Business
Journal of Business, Vol. 55, No. 4, pp. 517-530, 1982
We use a general model to analyze the optimal intertemporal pricing policy for a monopolist when current and past output play a role in determining future cost and/or demand conditions through, "experience," in production and/or in consumption. As would be expected, the optimal price path depends on the manner in which experience affects demand and cost functions. Three special cases are scrutinized: (1) learning by doing in which production costs are scaled downward over time; (2) learning by doing in which pro- duction costs are translated downward over time; and (3) the case of demand satiation. For these cases, the optimal price paths are shown to be, respectively, decreasing, increasing, and nonmonotonic.
Number of Pages in PDF File: 14Accepted Paper Series
Date posted: June 17, 2011
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