Optimal Pricing Policy for Successive Product Generations in the Presence of Value Uncertainty

When a firm introduces newer product generations over time, forward-looking consumers can either buy the current version immediately or wait for a newer version. The value of the newer generation is ex ante uncertain. We investigate the role of pricing policies in forming consumer behavior, and study the market conditions that lead to a certain optimal pricing policy. We find that setting prices for the future version of the product in advance when customers are uncertain of the product value (preset pricing) induces consumers to delay purchasing decisions for the newer version even when the price is projected to increase. Meanwhile, setting the price of the future version after its value unveils (consequent pricing) prompts immediate purchase of the current version. When the benefit from delayed purchase decisions is significant, even setting one price for different versions (uniform pricing) can outperform consequent pricing. Presetting price also serves as an effective means to price discriminate heterogeneous consumers. We also show that preset pricing, which lacks the ability to respond to value uncertainty, can be preferable to consequent pricing when value uncertainty is high. Lastly, continuing to sell the older version with the newer version is more profitable than discontinuing it under the preset pricing policy