Showing papers on "Dynamic pricing published in 1976"

Dynamic Pricing with Stochastic Entry

Abstract: It has been recognized that an intelligent oligopolist should take into consideration both potential as well as existing competitors while determining his price-output policies. Bhagwati [1] and Modigliani [6] present excellent surveys of various assumptions and strategies proposed by different authors in setting a " limit price " to prevent a new entry. The general conclusion is that an oligopolist can charge an entry-preventing price which is higher than the competitive price. Since the existing competition affects the firm's " short run " profit, while the " long run " profit is determined by potential competition, it seems reasonable that the firm should seek to maximize some weighted average of the two, as suggested by Hicks [4]. Consequently the optimal price should lie between the monopolistic price and the competitive one. These and similar other interesting conclusions about the optimal pricing strategies were also obtained by Gaskins [3] and Kamien and Schwartz [5] using the optimal control theory framework. In this paper we propose a semi-Markov decision model for determining a sequence of optimal prices to be charged and the corresponding long-run profit streams, along with their limiting behaviour as the number of firms in the industry tends to infinity. The assumptions are stated and the model is formulated in the next section. The third section presents the main results about the transient and the limiting behaviour of the model along with their interpretation, while the proofs are presented in the last section.