New Product Pricing In Quality Sensitive Markets

Stephen A. Smith

This paper considers the problem of pricing a new product in a market, competing products of different qualities and market penetration levels, as measured by the cumulative number of units sold. Each customer type selects his optimal product based maximizing consumer surplus. Pricing policies for a new product are determined for the seller based on cumulative profit maximization without discounting. An example is solved in detail for two demand function forms.

(Pricing; New Product Entry; Quality Differentiation)