Launch Strategies for Upgraded Products with Consideration of Selfcannibalization

Abstract

This paper studies optimal pricing and timing of a firm to launch an upgraded product to maximize its revenue, considering self-cannibalization between two generation products. Heterogeneous customers arriving to the market compare utilities resulted from existing and new products and try to maximize their utilities. We model the firm and customers' decision-makings as a two-stage dynamic game and its equilibrium results are derived. Our numerical analysis shows that technology innovation of the new product significantly improves the firm's revenue performance. Technology innovation brings added value to the new product, which allows a higher pricing for the upgraded product. However, it has no impact on the firm's optimal launch time. In addition, depreciation speed of the product has a negative impact on the firm's total revenue. However, it does not affect optimal launch strategies, which include optimal launch price and launch time.