Diffusion and Pricing Over the Product Life Cycle

Abstract

This chapter presents a selective review of a literature in marketing that analyzes diffusion and pricing over the product life-cycle. I primarily focus on empirical work, and on papers that deal with the dynamics of pricing over time. I discuss how recent empirical work has linked outcomes to micro-foundations and accommodated a role for forward-looking consumers and firms. I emphasize a more nuanced perspective of the product life-cycle that has emerged in the literature, as an endogenous outcome arising from the interaction of preferences, expectations, costs and competition in the market, rather than as an exogenously specified process against which marketing strategies should be optimized.

Keywords: diffusion, dynamic pricing, durable goods, forward-looking consumers and firms, time consistency, Markov Perfect Equilibrium

JEL Classification: M13, M31, L11, L82