MONOPOLIST OPTIMUM PRICING AND ADVERTISING POLICIES FOR DIFFUSION-MODELS OF NEW PRODUCT INNOVATIONS

On the theoretical side, this paper contains a general diffusion model of innovation that includes previous models in the literature as spec ial cases. Optimal price and advertising are characterized qualitative ly for the general model and several specific cases. Cost learning eff ects and discounting of future profits are considered, but repeat sale s and likely entry of competitors are disregarded. On the empirical si de, eighteen alternative diffusion models for a newly introduced innov ation have been estimated and compared using non-linear procedures. Em pirical research findings suggest that for the considered case study, price affects the coefficient of imitation whereas advertising affects the coefficient of innovation. Price (advertising) elasticity of dema nd is found to be increasing (decreasing) over time.