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Delayed Product Introduction

Author

Listed:
  • Kai-Lung Hui

    (National University of Singapore)

  • Qiu-Hong Wang

    (National University of Singapore)

Abstract

We 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.

Suggested Citation

  • Kai-Lung Hui & Qiu-Hong Wang, 2005. "Delayed Product Introduction," Industrial Organization 0503011, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0503011
    Note: Type of Document - pdf; pages: 35
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0503/0503011.pdf
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    References listed on IDEAS

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    3. Drew Fudenberg & Jean Tirole, 1998. "Upgrades, Tradeins, and Buybacks," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 235-258, Summer.
    4. Anirudh Dhebar, 1994. "Durable-Goods Monopolists, Rational Consumers, and Improving Products," Marketing Science, INFORMS, vol. 13(1), pages 100-120.
    5. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
    6. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 729-749.
    7. Laura J. Kornish, 2001. "Pricing for a Durable-Goods Monopolist Under Rapid Sequential Innovation," Management Science, INFORMS, vol. 47(11), pages 1552-1561, November.
    8. Morris A. Cohen & Jehoshua Eliasberg & Teck-Hua Ho, 1996. "New Product Development: The Performance and Time-to-Market Tradeoff," Management Science, INFORMS, vol. 42(2), pages 173-186, February.
    9. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    10. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    11. Kevin B. Hendricks & Vinod R. Singhal, 1997. "Delays in New Product Introductions and the Market Value of the Firm: The Consequences of Being Late to the Market," Management Science, INFORMS, vol. 43(4), pages 422-436, April.
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    Cited by:

    1. Qiu_Hong Wang & Kai-Lung Hui, 2005. "Technology Timing and Pricing In the Presence of an Installed Base," Industrial Organization 0512013, EconWPA.

    More about this item

    Keywords

    delayed introduction; durable goods monopolist; cannibalization; durability; time inconsistency; upgrade; product innovation; three-period model;

    JEL classification:

    • L - Industrial Organization

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