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Product Preannouncement in New Markets: A Strategic Analysis

Listed author(s):
  • Herbert Dawid
  • Yongchuan Bao

We deal with new product preannouncements in markets where customer preferences are unknown and highly unstable, as would be the case with disruptive product innovations. Our analysis is focused on the tradeoff between the firms incentive to influence consumer preferences via preannouncements and the risk of repositioning costs for preannouncing firms in such new markets. The framework of a three stage duopoly game is employed to address these issues. The stages are pre-announcement (yes-no and position), product positioning and price competition. Consumer preferences are ex-ante unknown, can be influenced by pre-announcement and are observable prior to product positioning. The profit of a firm is influenced by three main factos: i) the attractiveness of its product (depending on the distance of the product position from the "sweet spot" of the market and the competitor), ii) the repositioning costs occuring if the final product differs from the pre-announced one, iii) costs of technologcial re-orientation arising if the product position is far from the firm"s prior technological expertise. We rely on a numerical analysis of the model to characterize under which circumstances equilibria with symmetric, asymmetric or no preannouncements arise and to highlight some interesting properties of the optimal strategies concerning pre-annoucement positions and final positions.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 202.

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Date of creation: 11 Aug 2004
Handle: RePEc:sce:scecf4:202
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