Delayed Product Introduction
AbstractWe investigate the incentives of a monopolistic seller to delay the introduction of a new and improved version of his product. By analyzing a three-period model, we show that the seller may prefer to delay introducing a new product, even though the enabling technologies for the product are already available. The underlying motivation is analogous to that found in the durable goods monopolist literature – the seller suffers from a time inconsistency problem that causes his old and new products to cannibalize each other. Without the ability to remove existing stock of the old product from the market, shorten product durability, or pace research and development (R&D), he 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 could occur regardless of whether the seller can offer upgrade discounts to consumers, that instead, it is related to quality improvement brought about by the new product, durabilities, and discount factors. Further, we show that contrary to previous studies, delayed introduction could bring socially efficient outcomes as well. Based on the insights of the model, we provide practical suggestions on pricing and policies.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0503011.
Length: 35 pages
Date of creation: 27 Mar 2005
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Note: Type of Document - pdf; pages: 35
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delayed introduction; durable goods monopolist; cannibalization; durability; time inconsistency; upgrade; product innovation; three-period model;
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- L - Industrial Organization
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