New technology introduction and product rollover strategies

Abstract

In a market with a technology provider and two competing manufacturers, we examine the provider's technology introduction strategy and the manufacturers’ product rollover strategies. Our main results show that, first, the provider sells the new technology to both manufacturers in the case of small-level technology improvement, and sells to only one of them otherwise. Specifically, under the niche strategy (i.e., the provider sells the new technology to only one manufacturer), the provider sells the new technology to the low-quality manufacturer in the case of moderate-level technology improvement; otherwise, the provider sells to the high-quality manufacturer. Interestingly, the provider's profit may decrease with increased technology improvement. Second, the manufacturers will remove the old version of the product from the market when adopting the new technology, as long as the quality of the new version of the product exceeds a critical threshold. Finally, if the provider has a limited production capacity and can only satisfy the demand of one manufacturer, the provider sells the new technology to the low-quality manufacturer when the technology improvement is moderate; otherwise, the provider sells to the high-quality manufacturer.