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A model of product line design and introduction sequence with reservation utility

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  • Lacourbe, Paul
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    Abstract

    Cannibalization is a major concern for a firm when designing a product line. In addition, external options from outside the firm’s product line may also play a significant role. In this paper, we investigate the impact of external options, represented by reservation utility, on product line design and introduction sequence. We find that: (a) heterogeneous reservation utility defines the relative attractiveness of segments and corresponding product line; (b) reservation utility makes it more favorable to introduce products sequentially rather than simultaneously; (c) aggregating segments is an effective way to mitigate cannibalization when it becomes too difficult to manage with different values of reservation utility across multiple segments; and (d) introducing products in a non-monotone order of quality can improve profit from simultaneous introduction when the value of reservation utility of a middle segment is particularly high.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 220 (2012)
    Issue (Month): 2 ()
    Pages: 338-348

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    Handle: RePEc:eee:ejores:v:220:y:2012:i:2:p:338-348

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Product line design; Vertical differentiation; Introduction sequence; External options; Reservation utility;

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