Defining speed of diffusion as the amount of time it takes to get from one penetration level to a higher one, we introduce a dynamic model in which we study the link between pricing policy, speed of diffusion, and number of competitors in the market. Our analysis shows that, in the case of strategic (oligopolistic) competition, the speed of diffusion has an important influence on the optimal pricing policy. In particular, we find that higher speeds of diffusion create an incentive to strategically interacting firms to lower their prices.
Bibliographical noteFunding Information:
1Research of this paper was initiated when both authors spent their sabbatical at the Haas School of Business, University of California at Berkeley. The first author acknowledges financial support by the Austrian Science Foundation, SFB 10. 2Professor, Department of Business Studies, University of Vienna, Vienna, Austria. 3Senior Lecturer, Graduate School of Business Administration, Bar-Ilan University, Ramat–Gan, Israel.
- New product diffusion
- closed-loop strategies
- differential games
- pricing strategy
- speed of diffusion