Group for Research in Decision Analysis

Delaying product introduction in a duopoly: A strategic dynamic analysis

Serhat Gezer Bielefeld University, Germany

We consider an economy where initially two firms are active on a homogeneous product market. One of the firms has an option to introduce a substitute product in addition to the existing product by incurring adoption costs. We numerically derive the optimal introduction time and the associated Markov-perfect equilibria for investment in capacities and find that depending on the initial capacities on the established market and the value of adoption costs, three scenarios are possible for the innovator, namely introducing immediately, delaying introduction and abstaining from product introduction. In case of delay, the innovator strategically reduces investment in capacities on the established market prior to product introduction in order to increase the marginal value of the new product when switching.

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