TY - JOUR
T1 - Dynamic optimal pricing and (possibly) advertising in the face of various kinds of potential entrants
AU - Bourguignon, Francoise
AU - Sethi, Suresh P.
N1 - Funding Information:
*Thanks are due to James Friedman, Frank Mathewson, Eitan Muller, Dave Quirin, Nancy Schwartz, Barry Smith, Monty Sommers and the referees for their comments and suggestions. Support from the NSERC Grant A4619 is gratefully acknowledged. ‘Bain (1956) formalized the concept of the limit price as the highest price that the firm can set without inducing entry; see also Modigliani (1958) and Pashigian (1968). As a generalization of this concept, Baumol et al. (1977) examine conditions under which a multiproduct natural monopoly can find a price-output vector that is sustainable against competitive entry; see also Faulhaber (1975).
PY - 1981/11
Y1 - 1981/11
N2 - Several nonlinear stochastic models are developed for a dynamic profit-maximizing firm with respect to its price and (possibly) advertising decisions under threat of entry. The optimal price-advertising policies for these models are characterized by the use of the Maximum Principle. While the optimal policy will depend on the assumed functional forms, it is shown that, under certain plausible assumptions, the optimal policy is to increase profit by charging a higher price and decrease the resulting threat of entry by a higher level of advertising.
AB - Several nonlinear stochastic models are developed for a dynamic profit-maximizing firm with respect to its price and (possibly) advertising decisions under threat of entry. The optimal price-advertising policies for these models are characterized by the use of the Maximum Principle. While the optimal policy will depend on the assumed functional forms, it is shown that, under certain plausible assumptions, the optimal policy is to increase profit by charging a higher price and decrease the resulting threat of entry by a higher level of advertising.
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U2 - 10.1016/0165-1889(81)90007-5
DO - 10.1016/0165-1889(81)90007-5
M3 - Article
AN - SCOPUS:0041465501
SN - 0165-1889
VL - 3
SP - 119
EP - 140
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
IS - C
ER -