Dynamic pricing and competitive time-to-market strategy of new product launch under a multistage duopoly

Abstract

Due to frequent changes in consumer tastes, manufacturers continuously introduce new products to meet the desires of consumers. As a result, product launching strategies and pricing decisions have a considerable impact on a firm’s profits, especially for short-life-cycle products. This study considers pricing competition in a multistage game between two asymmetric firms and examines three scenarios that are developed based on the firms’ product launching strategies under a single-product policy. Specifically, the firms may adopt simultaneous launching strategies and interact with each other in a two-stage game, or they may introduce their new products earlier or later than their rival under a three-stage interaction. We derive the firms’ equilibrium pricing decisions in a dynamic programming approach and analyze the firms’ equilibrium pricing behavior. Furthermore, we investigate the parametric effects on the firms’ profitabilities, performances, and preferences with regard to the product launching strategies. Introducing a new product later than the rival is often a dominant strategy for firms. However, in some cases, the firms may change their preference to launch their new product earlier than their rival to allow for a longer sales period.