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The Optimal Timing of the Introduction of New Products

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  • Marzia Raybaudi
  • Martin Sola
  • Shasikanta Naindebam

Abstract

This paper addresses the e¤ects for partial equilibrium models of relaxing one of the critical underlying assumptions of the textbook approach (Dixit and Pyndick, 1994) to investment under uncertainty: either the potential investor has access to a single project or she can consider competing (or complementary) projects independently. This paper studies the investment decision of a multi-product monopolist where the projects exhibit interdepen- dence between the cash ‡ows of di¤erent products. We derive the optimal entry time for each product and show that both the choice and timing of investment is di¤erent from that suggested by the textbook approach. The decision to produce related goods simultaneously or sequentially crucially depends on their degree of substitutability or complementarity.

Suggested Citation

  • Marzia Raybaudi & Martin Sola & Shasikanta Naindebam, 2010. "The Optimal Timing of the Introduction of New Products," Department of Economics Working Papers 2010-07, Universidad Torcuato Di Tella.
    • Handle: RePEc:udt:wpecon:2010-07
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    References listed on IDEAS

    as
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    3. Donald Erlenkotter, 1973. "Sequencing Expansion Projects," Operations Research, INFORMS, vol. 21(2), pages 542-553, April.
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    6. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    7. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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