Dynamic Optimal Control Policy in Price and Quality for High Technology Product

Abstract

This paper studies optimal control policies of quality level and price for the introduction of a new product with two competing technology generations in a dynamic environment and also proposes a new model in this regard. Lots of work has been done to study the optimal policies pertaining to explanatory variables like price, promotional effort, quality, time etc. In comparison high technology products have received less attention. The proposed model is a combination of diffusion models and the cost function, which is capable of estimating the future profit trends. The new model uses the relationship between the repeat purchasers and the new purchasers in the overall diffusion of a new technology over multiple generations, by separately identifying the two types of adopters.