Pricing in Innovation Diffusion among Competitors

April 3, 2019


Pricing is analyzed with a system dynamics approach in the context of a dynamic competition among two competitors, one of them offers a product that appears first in the market (the leader), intended to be an innovation, the other (the follower), offers a similar product but enters into the market with a certain lag; price sensitivity, brand equity, lag’s length, quality of the products and consumers response are considered. The leader´s strategy stands on price and revenue performance where else the follower´s on market share. The dynamics is modeled, simulations are made and conclusions are driven. Simulated experiments are used to compute dynamic price elasticity and the hypothesis that the absolute value of price elasticity increases with time is questioned and different shapes reported from empirical data are confirmed associated to pricing strategies. The hypothesis that price reduction increases market share and profitability is also analyzed finding scenarios where it is confirmed and refuted according to price sensitivity of the market.


Innovation diffusion; stage structure; price strategy; competition; quality; brand equity; dynamic price elasticity


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Author Details

Javier Pulido-Cejudo