Periodic Price Reduction as a Way to Boost Diminishing Demand
نویسندگان
چکیده
This paper provides a new explanation of why price reductions take place on a regular basis. It is argued that the demand for a ...rm’s product drops over time because of the erosion of consumers’ brand recall, which in turn can be boosted by price cuts. After analyzing the dynamic optimal choice of price discounts in both monopoly and duopoly settings, I show that a monopolist’s optimal pricing strategy involves alternating between a constant high (normal) price and a constant low (discount) price with ...xed frequency. In duopoly competition, the two ...rms always o¤er discounts at the same time in any equilibrium.
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