Delayed Product Introduction

Publication Type

Journal Article

Publication Date

11-2012

Abstract

We investigate the incentives of a monopolist seller to delay the introduction of a new and improved version of its product. By analyzing a three-period model, we show that the seller may prefer to delay introducing a new product, even though the underlying technologies for the product are already available. The motivation is analogous to that found in the durable goods monopolist literature the seller suffers from a time inconsistency problem that causes its old and new product to cannibalize each other. Without the ability to remove the old product from the market, shorten product durability, or pace research and development (R&D), the seller may respond by selling the new product later. We characterize the equilibria with delayed introduction, and study their changes with respect to market and product parameters. In particular, we show that delayed introduction can occur regardless of whether the seller can offer upgrade discounts to consumers. Instead, it is related to the extent of quality improvement brought by the new product, durabilities, and discount factors. Further, we show that delayed introduction can bring socially efficient outcomes. Based on the insights of our model, we provide practical suggestions on pricing and policies.

Keywords

Delayed product introduction, Upgrade, Durability, Time inconsistency

Discipline

Computer Sciences | Strategic Management Policy | Technology and Innovation

Research Areas

Information Systems and Management

Publication

Decision Support Systems

Volume

53

Issue

4

First Page

870

Last Page

880

ISSN

0167-9236

Identifier

10.1016/j.dss.2012.05.013

Publisher

Elsevier

Additional URL

http://dx.doi.org/10.1016/j.dss.2012.05.013

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