The Triggers, Timing and Speed of New Product Price Landings

61 Pages Posted: 8 Sep 2008

See all articles by Carlos H. Mireles

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

Many high-tech products and durable goods exhibit exactly one significant price cut some time after their launch. We call this sudden transition from high to low prices the price landing. In this paper we present a new model that describes two important features of price landings: their timing and their speed. Prior literature suggests that prices might be driven by sales, product line pricing, competitor’s sales or simply by time. We propose a model using mixture components that identifies which of these explanations is the most likely trigger of price landings. We define triggers as thresholds after which prices are significantly cut. In addition, price landings might differ across products and therefore we model their heterogeneity with a hierarchical structure that depends mainly on firm, product type and seasonal effects. We estimate our model parameters applying Bayesian methodology and we use a rich dataset containing the sales and prices of 1195 newly released video-games (VG’s). In contrast with previous literature, we find that competition and time itself are the main triggers of price landings while past sales and product line are less likely triggers. Moreover, we find substantial heterogeneity in the timing and speed of price landing across firms and product types.

Keywords: pricing, pricing models, new products

JEL Classification: C44, M31, M, L11, D4

Suggested Citation

H. Mireles, Carlos and Fok, Dennis and Franses, Philip Hans, The Triggers, Timing and Speed of New Product Price Landings (22 2008 7,). ERIM Report Series Reference No. ERS-2008-044-MKT. Available at SSRN: https://ssrn.com/abstract=1262634

Carlos H. Mireles (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
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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