Optimal Pricing of New Subscriber Services under Interdependent Adoption Processes

Abstract

This article develops and optimizes dynamic diffusion systems for new subscriber consumer services. Each proposed system is composed of two differential equations, one for the retailer adoption process and another for the consumer adoption process that incorporates price. Several of such systems are optimized using optimal control methods. Presence of interaction is found to significantly influence the qualitative characterization of pricing policies of new subscriber services. Furthermore, even when interaction is not present, the derived characterization of optimal pricing policies proved to be very different from those reported in the literature for new consumer durables.

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