Pricing Models

Abstract

Writing about oligopolistic pricing theory, Vives (1999) notes that “Using the tools provided by differential games, the analysis can be extended to competition in continuous time. The result is a rich theory which explains a variety of dynamic patterns of pricing … ”. This statement applies equally well to marketing science research in pricing, where applications of differential games have been concerned with a range of topics in strategic pricing: new product pricing, entry problems, the effects of cost experience on optimal pricing policies, as well as pricing in distribution channels. The need for a dynamic approach when analyzing real world marketing problems essentially stems from the presence of two phenomena, cost learning and diffusion effects.