ABSTRACT
This chapter discusses how several distinguishing features of high-tech products and services guide their pricing strategies. Products and services are highly differentiated by means of R&D and complementary promotion. Pricing strategies of firms vary with the particular form of imperfect competition. The chapter then provides a detailed discussion of examples of pricing strategies from three high-tech sectors, pharmaceuticals, commercial jet aircraft, and software. It discusses the concept of disguised price discrimination, bundling, experience curve pricing, penetration pricing, bandwagon effects, and pricing of technology. If pricing of high-tech products and services is challenging, pricing of technology is doubly challenging. The market for technology, when it exists, cannot easily be analyzed in terms of any of the market structures examined earlier. Given the problem of moral hazard, transactions are few and extremely confidential. As a result, in technology markets, prices are negotiated in the form of licensing, cross-licensing, or technology exchange.
