Late product release: The strategic benefit of lost sales
When a firm’s competitor releases its product earlier than the firm, many consumers may decide to buy the competitor’s product, rather than wait for the firm’s product release. Hence, to avoid losing customers, the firm may also hasten its product release. In this paper, we show that, counterintuitively, even in the absence of market uncertainty and vintage effects, the firm may be better off by releasing its product later than the competitor, allowing the competitor to capture a large share of the early market. By releasing its product later, the firm induces its less “committed” customers to buy the competitor’s product, while the firm’s more committed customers choose to wait for the firm’s product. After releasing its product, the firm has an incentive to charge a high price to exploit the segment of consumers that have been waiting for its product release, which induces the firm’s competitor to also charge a high price, i.e., price competition becomes alleviated, benefiting all firms. Furthermore, we show that the firm can benefit if its competitor captures a large share of the early market, rather than a small share. In other words, the firm can become better off if the competitor’s market penetration increases. Our results suggest that the firm that is the first to release its product may benefit by using penetration pricing strategy rather than price skimming, because penetration pricing will help mitigate future price competition, while price skimming can lead to more intense competition.
More information on Dr. Mushegh Harutyunyan can be found at: https://sites.google.com/view/harutyunyan