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

61 Pages Posted: 8 Aug 2008  

Carlos H. Mireles

University of Texas at Austin

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

Multiple version iconThere are 2 versions of this paper

Date Written: 22 2008 7,

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.

Keywords: pricing, pricing models, new products

JEL Classification: C44, M31, M

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: https://ssrn.com/abstract=1211936

Carlos H. Mireles (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

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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