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

February 21, 2013


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 dates and the equilibrium of the game is to release new versions cyclically at the frequency that is optimal for the consumers. In the second setting, the firm preannounces and commits to a schedule of releases and the optimal policy typically consists of alternating short and long launch cycles. We find that the benefit of committing to a launch policy that accounts for the intertemporal consumer behavior can be quite significant. Finally, we generalize the model to multiple customer classes that have different valuations for the product. We use a duality argument to show that the optimal launch policy under equilibrium constraints can be formulated as a mixed-integer program and numerically derive insights for different market compositions.

Number of Pages in PDF File: 40

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  

Suggested Citation

Lobel, Ilan and Patel, Jigar and Vulcano, Gustavo and Zhang, Jiawei, Optimizing Product Launches in the Presence of Strategic Consumers (February 21, 2013). 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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