Abstract

http://ssrn.com/abstract=2222266
 


 



Optimizing Product Launches in the Presence of Strategic Consumers


Ilan Lobel


New York University (NYU)

Jigar Patel


New York University (NYU) - Stern School of Business

Gustavo Vulcano


New York University (NYU) - Department of Information, Operations, and Management Sciences

Jiawei Zhang


New York University (NYU) - Department of Information, Operations, and Management Sciences

September 8, 2014


Abstract:     
A technology firm launches newer generations of a given product over time. At any moment, the firm decides whether to release a new version of the product that captures the current technology level at the expense of a fixed launch cost. Consumers are forward-looking and purchase newer models only when it maximizes their own future discounted surpluses.

We start by assuming that consumers have a common valuation for the product and consider two product launch settings. In the first setting, the firm does not announce future release technologies and the equilibrium of the game is to release new versions cyclically with a constant level of technology improvement that is optimal for the firm. In the second setting, the firm is able to precommit to a schedule of technology releases and the optimal policy generally consists of alternating minor and major technology launch cycles. We verify that the difference in profits between the commitment and no-commitment scenarios can be significant, varying from 4% to 12%.

Finally, we generalize our model to allow for multiple customer classes with different valuations for the product, demonstrating how to compute equilibria in this case and numerically deriving insights for different market compositions.

Number of Pages in PDF File: 44

Keywords: new product introduction, strategic consumer behavior, technology products, noncooperative game theory

JEL Classification: D21, D42, C72, C61

working papers series


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Date posted: February 23, 2013 ; Last revised: September 9, 2014

Suggested Citation

Lobel, Ilan and Patel, Jigar and Vulcano, Gustavo and Zhang, Jiawei, Optimizing Product Launches in the Presence of Strategic Consumers (September 8, 2014). Available at SSRN: http://ssrn.com/abstract=2222266 or http://dx.doi.org/10.2139/ssrn.2222266

Contact Information

Ilan Lobel (Contact Author)
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
Jigar Patel
New York University (NYU) - Stern School of Business ( email )
40 West 4th Street
New York, NY NY 10012
United States
Gustavo Vulcano
New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )
44 West Fourth Street
New York, NY 10012
United States
Jiawei Zhang
New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )
44 West Fourth Street
New York, NY 10012
United States
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