Truth or Consequences: An Analysis of Vaporware and New Product Announcements

Abstract:     
The software industry practice of announcing new products well in advance of actual market availability has led to allegations that firms are intentionally engaging in vaporware. The possible predatory and anti-competitive implications of this behavior recently surfaced in the antitrust case United States v. Microsoft Corporation. Taking the perspective that a new product announcement is a strategic signal between firms, we consider the possibility that intentional vaporware is a way to dissuade competitors from developing their own competing new products. An examination of empirical data for the software industry suggests that some firms may use vaporware in a strategic manner. We then formulate and analyze the preannouncement and introduction timing decisions in a game theoretic model of two competing firms. We find that vaporware can be a way for a dominant firm to signal its product development costs, and that intentional vaporware can deter entry. We also show that there is a curvilinear relationship between development costs and announcement accuracy, i.e., firms with high or very low product development costs make accurate product announcements, while firms with intermediate product development costs intentionally engage in vaporware. Empirical support for these theoretical results is also found in the software industry data. Finally, we discuss the beneficial and harmful consequences of vaporware, and the associated implications.

Keywords: Antitrust; Software; Vaporware; Signalling Model; Game Theory

JEL Classifications: L4, K0, C7, M3

Working Paper Series