Product Launches and Buying Frenzies: A Dynamic Perspective

27 Pages Posted: 5 Sep 2012 Last revised: 2 Jul 2013

See all articles by Pascal Courty

Pascal Courty

University of Victoria; European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR)

Javad Nasiry

McGill University

Multiple version iconThere are 2 versions of this paper

Date Written: September 4, 2012

Abstract

Buying frenzies in which a fi rm intentionally undersupplies a product during its initial launch phase are a common practice within several industries such as electronics (cell phones, video games, game consoles), luxury cars, and fashion goods. We develop a dynamic model of buying frenzies that captures the production and sales of a product over time by the fi rm and then characterize the conditions under which frenzies are an optimal policy for the fi rm. We show that buying frenzies occur when customers are sufficiently uncertain about their product valuations and when customers discount the future but not excessively. Further, we propose a measure of "customer desperation" to measure the magnitude of frenzies and demonstrate that buying frenzies can have a signi cant impact on the fi rm's profi t. This paper provides managerial insights on how firms can affect the market response to a new product through their pricing, production, and inventory decisions to induce pro fitable frenzies.

Keywords: Advance Selling, Buying Frenzy, Customer Desperation, Strategic Customer Behavior

JEL Classification: D4, D8

Suggested Citation

Courty, Pascal and Nasiry, Javad, Product Launches and Buying Frenzies: A Dynamic Perspective (September 4, 2012). Available at SSRN: https://ssrn.com/abstract=2141208 or http://dx.doi.org/10.2139/ssrn.2141208

Pascal Courty

University of Victoria ( email )

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European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Javad Nasiry (Contact Author)

McGill University ( email )

1001 Sherbrooke St. West
Montreal
Canada

HOME PAGE: http://https://www.mcgill.ca/desautels/javad-nasiry

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