Pricing game between different brand's standard and innovative products of the same company

In a highly competitive market, technical innovation and product differentiation are becoming effective ways to avoid cut-throat competition. In this paper, the pricing game model is first established between different brand's standard and innovative products of the same company, then it is discussed that the influence of the degree of product differentiation on equilibrium price. Based on some numerical calculations, the relationships between the rate of innovation on price and demand are revealed at different cost level. At last, in the view point of optimizing the total profit, the optimal rate of innovation at each cost level is identified.