IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v53y2005i1p26-47.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1040.0157
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1040.0157?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. de Groote, Xavier, 1994. "Flexibility and marketing/manufacturing coordination," International Journal of Production Economics, Elsevier, vol. 36(2), pages 153-167, September.
    2. Glen M. Schmidt & Evan L. Porteus, 2000. "The Impact of an Integrated Marketing and Manufacturing Innovation," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 317-336, April.
    3. Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
    4. Shantanu Bhattacharya & V. Krishnan & Vijay Mahajan, 1998. "Managing New Product Definition in Highly Dynamic Environments," Management Science, INFORMS, vol. 44(11-Part-2), pages 50-64, November.
    5. Trichy V. Krishnan & Frank M. Bass & Dipak C. Jain, 1999. "Optimal Pricing Strategy for New Products," Management Science, INFORMS, vol. 45(12), pages 1650-1663, December.
    6. Jehoshua Eliashberg & Abel P. Jeuland, 1986. "The Impact of Competitive Entry in a Developing Market Upon Dynamic Pricing Strategies," Marketing Science, INFORMS, vol. 5(1), pages 20-36.
    7. Frank M. Bass & Trichy V. Krishnan & Dipak C. Jain, 1994. "Why the Bass Model Fits without Decision Variables," Marketing Science, INFORMS, vol. 13(3), pages 203-223.
    8. Kim B. Clark, 1989. "Project Scope and Project Performance: The Effect of Parts Strategy and Supplier Involvement on Product Development," Management Science, INFORMS, vol. 35(10), pages 1247-1263, October.
    9. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    10. Shlomo Kalish & Gary L. Lilien, 1986. "A Market Entry Timing Model for New Technologies," Management Science, INFORMS, vol. 32(2), pages 194-205, February.
    11. Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, II: Applications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 27-41.
    12. Christophe Van den Bulte, 2000. "New Product Diffusion Acceleration: Measurement and Analysis," Marketing Science, INFORMS, vol. 19(4), pages 366-380, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Terrence August & Marius Florin Niculescu, 2013. "The Influence of Software Process Maturity and Customer Error Reporting on Software Release and Pricing," Management Science, INFORMS, vol. 59(12), pages 2702-2726, December.
    2. M. Berk Ataman & Carl F. Mela & Harald J. van Heerde, 2008. "Building Brands," Marketing Science, INFORMS, vol. 27(6), pages 1036-1054, 11-12.
    3. V. Krishnan & Karl T. Ulrich, 2001. "Product Development Decisions: A Review of the Literature," Management Science, INFORMS, vol. 47(1), pages 1-21, January.
    4. Scott A. Shane & Karl T. Ulrich, 2004. "50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science," Management Science, INFORMS, vol. 50(2), pages 133-144, February.
    5. Kogan, Konstantin, 2016. "Pricing competition with inventory considerations in a hazard rate-prone market of durables," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 298-313.
    6. Meade, Nigel & Islam, Towhidul, 2006. "Modelling and forecasting the diffusion of innovation - A 25-year review," International Journal of Forecasting, Elsevier, vol. 22(3), pages 519-545.
    7. Vakratsas, Demetrios & Kolsarici, Ceren, 2008. "A dual-market diffusion model for a new prescription pharmaceutical," International Journal of Research in Marketing, Elsevier, vol. 25(4), pages 282-293.
    8. Ataman, B.M., 2007. "Managing brands," Other publications TiSEM 462dcbba-2ac1-46d1-a61c-f, Tilburg University, School of Economics and Management.
    9. Krishnamoorthy, Anand & Prasad, Ashutosh & Sethi, Suresh P., 2010. "Optimal pricing and advertising in a durable-good duopoly," European Journal of Operational Research, Elsevier, vol. 200(2), pages 486-497, January.
    10. Trichy V. Krishnan & Dipak C. Jain, 2006. "Optimal Dynamic Advertising Policy for New Products," Management Science, INFORMS, vol. 52(12), pages 1957-1969, December.
    11. Inseong Song & Pradeep Chintagunta, 2003. "A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category," Quantitative Marketing and Economics (QME), Springer, vol. 1(4), pages 371-407, December.
    12. Chul-Yong Lee & Sung-Yoon Huh, 2017. "Technology Forecasting Using a Diffusion Model Incorporating Replacement Purchases," Sustainability, MDPI, vol. 9(6), pages 1-14, June.
    13. Martin Spann & Marc Fischer & Gerard J. Tellis, 2015. "Skimming or Penetration? Strategic Dynamic Pricing for New Products," Marketing Science, INFORMS, vol. 34(2), pages 235-249, March.
    14. Ted Klastorin & Weiyu Tsai, 2004. "New Product Introduction: Timing, Design, and Pricing," Manufacturing & Service Operations Management, INFORMS, vol. 6(4), pages 302-320, August.
    15. Bayrak, Busra & Guray, Busra & Uzunlar, Nilsu & Nadar, Emre, 2024. "Diffusion control in closed-loop supply chains: Successive product generations," International Journal of Production Economics, Elsevier, vol. 268(C).
    16. Shi, Xiaohui & Li, Feng & Bigdeli, Ali Ziaee, 2016. "An examination of NPD models in the context of business models," Journal of Business Research, Elsevier, vol. 69(7), pages 2541-2550.
    17. Jongsu Lee & Chul-Yong Lee, 2009. "A Forecasting Model Incorporating Replacement Purchase: Mobile Handsets in South Korea's Market," TEMEP Discussion Papers 200904, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Apr 2009.
    18. Shun-Chen Niu, 2006. "A Piecewise-Diffusion Model of New-Product Demands," Operations Research, INFORMS, vol. 54(4), pages 678-695, August.
    19. John Hauser & Gerard J. Tellis & Abbie Griffin, 2006. "Research on Innovation: A Review and Agenda for," Marketing Science, INFORMS, vol. 25(6), pages 687-717, 11-12.
    20. Lotfi, Ali & Naoum-Sawaya, Joe & Lotfi, Aslan & Jiang, Zhengrui, 2024. "To Skim or not to Skim: Studying the Optimal Pricing Strategy for Technology Products," Omega, Elsevier, vol. 127(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:53:y:2005:i:1:p:26-47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.