Trade-In Programs in the Context of Technological Innovation with Herding

Abstract

We study optimal pricing strategies and consequent market shares’ dynamics in a transition from an old and established technology to a new one. We simulate an agent based model, in which a large population of possible buyers decide whether to adopt or not depending on prices, private signals and herding behavior. The firm, on its part, sets prices to maximize revenues. We show that trade-in programs, in practice comparable to very aggressive discounts, are supported by a rational attitude.

Keywords: agent-based models, mobile phone market, random utilities, technology competition, threshold models

JEL Classification: C63, C73, 033