Innovation diffusion uncertainty, advertising and pricing policies (Q1767710)

Maximization over time of the value of innovation for a monopolistic firm is formulated as a stochastic control problem. The market consists of several sectors, transitions among them are modeled as Wiener processes and are influenced by price, advertisement, etc. Advertising and pricing policies are positive real-valued adapted processes. The maximum is obtained by solving a Bellman equation. Under special assumptions, closed-form optimal advertising and/or pricing policies are derived. The model performance is illustrated by simulations.