PRICING AND ADVERTISING POLICIES FOR AN INNOVATION

                         DASH, MINATI; PHD
 
                         NEW YORK UNIVERSITY, GRADUATE SCHOOL OF BUSINESS ADMINISTRATION, 1982

                         BUSINESS ADMINISTRATION, MARKETING (0338)
 

                         This dissertation is concerned with determining the optimal pricing and advertising policy for an
                         innovative product sold by a monopolist firm. It is assumed that unit production cost declines as
                         cumulative production increases, due to 'learning', and also that individuals' reservation prices for the
                         product are distributed as a linear function of the disposable income. As price declines, more people
                         come into the market, given that they have been made aware of the product by advertising, or by seeing
                         it. Given product affordability and awareness, an individual's probability of purchase is modelled by a
                         diffusion of innovation process, that is, it is expressed as a constant plus a function of the number of
                         people who have already bought the product. These hypotheses are used to develop a model of sales
                         and profits as a function of price and advertising, which is optimized using control theory. This work
                         substantially extends the work of Bass (1980) and Teng and Thompson (1980) in two ways. First, it
                         explicitly considers the role of advertising and develops joint advertising and pricing policies. Second the
                         model of purchase probability is based on a set of hypotheses about individual buyer behavior rather
                         than aggregate considerations.

 


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