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Title
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A multi-stage optimal control approach of durable goods pricing and the launch of new product generations
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Author
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Abstract
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| We analyze the problem of a firm that sells durable goods. In particular, we investigate how this firm optimally combines continuous-time operational-level planning (continuously deciding on capacity investment) with discrete decision making (when to launch a new generation of the product, how to price a particular generation of the product). We find that a firm should invest most into its production capacity just after the introduction of a new product. Then there is a large number of potential customers and thus a large production capacity is needed to fulfill demand. The extent to which existing capacity can still be used in the production process for the next generation has a non-monotonic effect on the optimal timing of launching a new generation as well as on its price. We show that the optimal price declines with each new product generation. (C) 2019 Elsevier Ltd. All rights reserved. |
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Language
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English
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Source (journal)
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Automatica / International Federation of Automatic Control. - Oxford
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Publication
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Oxford
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2019
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ISSN
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0005-1098
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DOI
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10.1016/J.AUTOMATICA.2019.05.009
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Volume/pages
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106
(2019)
, p. 207-220
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ISI
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000473380000026
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Full text (Publisher's DOI)
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Full text (publisher's version - intranet only)
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