INCORPORATING PRICE, ADVERTISING AND DISTRIBUTION IN-DIFFUSION MODELSOF INNOVATION - SOME THEORETICAL AND EMPIRICAL RESULTS

On the theoretical side, this paper characterizes qualitatively optimu m price, advertising and distribution policies for new products. Repea t sales and possible entry of rivals are disregarded but discounting o f future profit streams and a cost learning curve are allowed. After c haracterizing optimal policies for a general diffusion model, the resu lts pertaining to several models of specific functional form are repor ted. The results of the theoretical research show that the qualitative structure of optimal pricing policies of earlier univariate diffusion models in the literature remain robust upon the inclusion of other va riables for a variety of multivariate models. On the empirical side, a lternative diffusion models have been estimated and compared using non -linear procedures. The diffusion data analysed are related to the U.S . cable TV industry. Empirical research findings suggest that, for the considered case study, price affects the coefficient of innovation, a dvertising affects the diffusion rate, and distribution affects market potential. Based on price, advertising and distribution elasticities derived from the chosen diffusion model, the shapes of the advertising and distribution cost functions are identified. Copyright (C) 1996 El sevier Science Ltd.