Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

1-2005

Publication Source

Operations Research

Volume

53

Issue

1

Start Page

26

Last Page

47

DOI

10.1287/opre.1040.0157

Abstract

We present a model describing the demand dynamics of two new products competing for a limited target market. The demand trajectories of the two products are driven by a market saturation effect and an imitation effect reflecting the product experience of previous adopters. In this general setting, we provide analytical results for the sales trajectories and life-cycle sales of the competing products. We use these results to study the impact of launch time on overall life-cycle sales. We consider the perspective of one of the competing products and model the trade-off between the lost revenues resulting from a delayed launch and the lower unit-production costs. We find that the profit-maximizing launch time exhibits a counterintuitive behavior. In particular, we show that a firm facing a launch time delay from a competing product might benefit from accelerating its own product launch, as opposed to using the softened competitive situation to further improve its cost position. We identify conditions under which a marginal cost-benefit analysis leads to suboptimal launch-time decisions. Finally, we analyze the Nash equilibrium in launch-time decisions of the two competing products.

Comments

At the time of publication, author Sergei Savin was affiliated with the Columbia University, New York. Currently (July 2016), he is a faculty member in the Operation, Information and Decision amking Department of the Wharton School at the University of Pennsylvania.

Keywords

new products:cross-functional performance metrics, marketing-operations coordination, competitive diffusion dynamics, cost of delay

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Date Posted: 27 November 2017

This document has been peer reviewed.