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Optimal Product Launch Times in a Duopoly: Balancing Life-Cycle Revenues with Product Cost

Author

Listed:
  • Sergei Savin

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Christian Terwiesch

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

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.

Suggested Citation

  • Sergei Savin & Christian Terwiesch, 2005. "Optimal Product Launch Times in a Duopoly: Balancing Life-Cycle Revenues with Product Cost," Operations Research, INFORMS, vol. 53(1), pages 26-47, February.
    • Handle: RePEc:inm:oropre:v:53:y:2005:i:1:p:26-47
    DOI: 10.1287/opre.1040.0157
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    References listed on IDEAS

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