Optimal pricing of a product with periodic enhancements

Consider a company whose customers may purchase annual (or periodic) updates of the product (the book of the year for an encyclopedia, for example). The authors determine how the profitability of the update affects the price of the company’s main product (the encyclopedia). The major result is that the product’s price should be more than the ‘myopic price’ if and only if the profitability of the update is less than the profitability per potential customer. The authors also show that an increase in the profitability of the update decreases the price of the product, and they derive several other sensitivity results