Effects of Strategic Consumer Behavior on Radical New Product Capacity Decision

Abstract

When radical new product is introduced to market, capacity and demand behave highly mismatch, so capacity decision has been a key issue that innovator need to consider. We consider three types of consumers: myopic consumers, strategic consumers and bargain-hunters, in which strategic consumers choose inter-temporal purchase timing. Firstly, we find that when the fraction of strategic consumers grows to some level, an extra fraction of strategic consumers will not influence the innovator’s capacity decision without speculator cases. Secondly, we study speculative behavior case, our results show that if speculator is risk averse, it’s no impact on innovator; if speculator behaves risk preference, innovator’s optimal capacity and quantity hoarded by speculator’s decrease in fraction of strategic customers and capacity cost. Finally, we show that speculator can alleviate mismatch risk between supply and demand, however, only fraction of strategic customers higher than some threshold level, speculator can increase innovator’s profits.