Periodic Price Reduction as a Way to Boost Diminishing DemandWen Zhou*
School of Business, the University of Hong Kong, Pokfulam Road, Hong Kong
- *Corresponding Author:
- Wen Zhou
School of Business the University of Hong Kong
Pokfulam Road, Hong Kong
E-mail: [email protected]
Received February 03, 2012; Accepted April 21, 2012; PublishedApril 23, 2012
Citation: Zhou W (2012) Periodic Price Reduction as a Way to Boost Diminishing Demand. J Bus Fin Aff 1:102. doi:10.4172/2167-0234.1000102
Copyright: © 2012 Zhou W. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
In this paper, I offer a new theory for why price reductions take place on a regular basis in some industries. I suggest that the demand for a firm’s product drops over time because of the erosion of consumers’ brand recall, and that price discounts are utilized to boost the diminishing demand. A dynamic model is then constructed to demonstrate the theory for both monopoly and duopoly competition. I show that it is optimal for a monopolist to alternate between a constant high (normal) price and a constant low (discount) price with fixed frequency, and that competing firms offer discounts at the same time in duopoly competition.