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What Should You Do When Your Competitors Send in the Clones?

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  • Devavrat Purohit

    (University of California, Berkeley)

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    Abstract

    This paper develops a model to address an important problem facing a manufacturer of a durable product. That is, how can it plan its new product introductions to minimize the obsolescence of the old product, preserve its market for the new product, and keep copycat products at bay? We analyze these issues by developing a two-period model in which a firm sells an “old” product in period 1 and a “new” product in period 2. We consider various new product introduction strategies such as product replacement, line extension, and upgrading. We find that the optimal response to a threat of competitive clones is to increase the level of product innovation. This increase in innovation coupled with the entry of a competitive product implies that the incumbent firm has less of an incentive to leapfrog the old product or shelve the new product.

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    File URL: http://dx.doi.org/10.1287/mksc.13.4.392
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 13 (1994)
    Issue (Month): 4 ()
    Pages: 392-411

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    Handle: RePEc:inm:ormksc:v:13:y:1994:i:4:p:392-411

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    Related research

    Keywords: competitive strategy; game theory; product policy;

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    Cited by:
    1. Wilhelm, Wilbert E. & Xu, Kaihong, 2002. "Prescribing product upgrades, prices and production levels over time in a stochastic environment," European Journal of Operational Research, Elsevier, vol. 138(3), pages 601-621, May.
    2. Laksana, Kamonkan & Hartman, Joseph C., 2010. "Planning product design refreshes with service contract and competition considerations," International Journal of Production Economics, Elsevier, vol. 126(2), pages 189-203, August.
    3. Rajeev K. Tyagi & Jagmohan S. Raju, 2006. "The pace of intermediate-product introductions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(7), pages 527-535.
    4. Teng, Jinn-Tsair & Thompson, Gerald L., 1996. "Optimal strategies for general price-quality decision models of new products with learning production costs," European Journal of Operational Research, Elsevier, vol. 93(3), pages 476-489, September.
    5. Drew Fudenberg & Jean Tirole, 1997. "Upgrades, Trade-Ins and BuyBacks," Harvard Institute of Economic Research Working Papers 1803, Harvard - Institute of Economic Research.
    6. Hernández-Mireles, C. & Franses, Ph.H.B.F., 2010. "The Launch Timing of New and Dominant Multigeneration Technologies," ERIM Report Series Research in Management ERS-2010-022-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    7. Franses, Ph.H.B.F. & Hernández-Mireles, C., 2006. "When Should Nintendo Launch its Wii? Insights From a Bivariate Successive Generation Model," ERIM Report Series Research in Management ERS-2006-032-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    8. Fethke, Gary & Jagannathan, Raj, 2002. "Monopoly with endogenous durability," Journal of Economic Dynamics and Control, Elsevier, vol. 26(6), pages 1009-1027, June.
    9. Sumitro Banerjee & David A. Soberman, 2013. "Product development capability and marketing strategy for new durable products," ESMT Research Working Papers ESMT-13-01, ESMT European School of Management and Technology.
    10. Fethke, Gary & Jagannathan, Raj, 2000. "Why would a durable good monopolist also produce a cost-inefficient nondurable good?," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 793-812, July.

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