Optimal pricing policy under uncertain product lifetimes

Many studies in marketing and economics have attempted to model price and sales path under the dynamic diffusion process. Most of these models have been based on a fixed product lifetime. The current business climate requiring intensive development of new products, however, affects the diffusion of new products and their lifetime. Many products have not enjoyed the expected life cycle at the launching stage due to intense technical development, competitive reactions, and financial problems. Most diffusion models, however, have not taken account of the lifetime uncertainty of new product. If the products do not last over the planning horizon set by those models, the optimal price derived from them could be futile. Therefore, we had better take such lifetime uncertainty into consideration when developing diffusion models. In this paper, we study the impact of uncertain product lifetime on its optimal pricing path in non-competitive market. We develop an optimal pricing model under uncertain product lifetimes and conduct a simulation study to investigate their effects on the optimal pricing and corresponding sales paths. The simulation study provides some interesting findings on optimal pricing policy under uncertain product lifetime. This study could be a stepping stone for the further extended study of optimal pricing strategy with uncertain product lifetime.