Dynamic pricing rule and R&D

Type de publication : Article Scientifique

Date de la publication : Août 2011

Auteur(s) : M. CHENAVAZ Regis

Editeur : Economics Bulletin

Détails (Pages/Numéro) : Vol. 31 no.3 pp. 2229-2236

Abstract : This article models the intertemporal behaviour of a firm that sets product prices and simultaneously invests in R&D. The model shows that the dynamic pricing rule follows the evolution of the production cost and is independent of the evolution of the product quality. Thus, process innovation, which reduces production cost, is the main determinant of a firm's pricing policy over time. Moreover, the firm invests more in process innovation over time at the expense of product innovation. Hence, the model explains the decrease in the cost of production and in the price of technological products throughout their life cycle.

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