AN EMPIRICAL STUDY ON THE DETERMINATION OF PRICE, WARRANTY LENGTH AND PRODUCTION RATE IN THE STATIC SALES MARKET

ABSTRACTThe present paper provides a theoretical development and empirical study on determining price, warranty length and production rate in the static sales market, where word of mouth is not important. For the theoretical development, we present the decision model of determining the optimal price, warranty length and production rate of a product such that the present value of the product profit may be maximized. The empirical study aims at choosing among the alternative model specifications and assessing the shapes of the sales rate function. The sales rate functions are estimated by nonlinear regression, and then are tested by using battery sales data as input while price, warranty length and production rate as outputs. Results of the empirical study are consistent with the corresponding theoretical predictions and consequently show the applicability of the decision model.