Optimal Strategic Pricing of Reproducible Consumer Products

Wilfried R. Vanhonacker

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Supply Chain and Inventory Management Copyright and Intellectual Property Innovation Diffusion and Forecasting

Abstract

This paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction (e.g., computer software). As copy piracy results in an opportunity loss, its adverse effect on profits needs to be incorporated in strategic decisions such as pricing. Using a dual diffusion model which parsimoniously describes sales and copying, and employing control theory methodology, optimal price trajectories are derived for the period of monopoly. The results indicate that (a) in absence of any protection, skimming pricing strategies are generally optimal, and (b) copy protection is warranted only when sales diffuse much faster than copying and the protection technology does not significantly raise the marginal production cost.

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References

1976A New Product Growth Model for Consumer Durables 1970Invention, Growth and Welfare: A Theoretical Treatment of Technological Change.1975Dynamic Price Models for New-Product Planning 1985Copying and Indirect Appropriability: Photocopying of Journals 1978Gains to Producers from the Cartelization of Exhaustible Resources 1985The Economics of Copying 1984The Effects of Increased Copyright Protection: An Analytic Approach 1981Experience Curves and Dynamic Demand Models: Implications for Optimal Pricing Strategies

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2002Entry strategy for radical product innovations: A conceptual model and propositional inventory 2009Speed Matters: The Role of Free Software Offer in Software Diffusion 2007Optimal Pricing of Digital Experience Goods Under Piracy 2004The Effect of Piracy on the Market Penetration of Subscription Software 2005Optimal pricing for information goods with piracy and saturation effect 1993

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