Pricing competition between innovator and imitator facing strategic customers

When an innovative product is introduced into the market, the innovator realizes that she will always face the competition of entrant imitator(s) after a period of monopoly time. Strategic customers may also anticipate that and can rationally make their purchase plan, which further complicates the situation of competition. In this paper, we develop a dynamic game model to formulate the problem and obtain the pricing equilibrium. In numerical studies, the relative position of monopoly price, the markdown size of the innovator and the relative price difference between the two firms are investigated to analyze the impacts of various factors on the pricing policies.