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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.
new products:cross-functional performance metrics, marketing-operations coordination, competitive diffusion dynamics, cost of delay
Savin, S., & Terwiesch, C. (2005). Optimal Product Launch Times in a Duopoly: Balancing Life-Cycle Revenues With Product Cost. Operations Research, 53 (1), 26-47. http://dx.doi.org/10.1287/opre.1040.0157
Date Posted: 27 November 2017
This document has been peer reviewed.