State aid and the learning‐by‐doing effect on product pricing

Abstract

Product pricing is challenging for most companies due to its strategic nature and because numerous factors affect it. Recently, government support also started to gain high impact on business decisions especially in case of new products or new companies. The paper investigates how state aid, accumulated productivity knowledge, and the efficiency of learning determine product pricings dynamic nature. With the help of a multiperiod model, we analyze the interrelation of price and profit, demand and price, learning and pricing, and cost and demand. Results also include the analytical denouements, graphical illustrations, and observations of the optimal conditions.