Incorporating Consumer Price Expectations in Diffusion Models Vol. In this paper the sensitivity of the optimal price path of a new durable product to the price expectations of consumers is examined.
Consumers enter the market every period in a diffusion type framework.
During the initial periods more consumers enter the market due to word of mouth influence, but in the latter periods saturation effects set in. The entering set of cohorts form expectations about future prices and in a stable equilibrium, these expectations are fulfilled. The sensitivity of the optimal price path to model parameters is explored through a numerical procedure.