What Should You Do When Your Competitors Send in the Clones?

Abstract

This paper develops a model to address an important problem facing a manufacturer of a durable product. That is, how can it plan its new product introductions to minimize the obsolescence of the old product, preserve its market for the new product, and keep copycat products at bay? We analyze these issues by developing a two-period model in which a firm sells an “old” product in period 1 and a “new” product in period 2. We consider various new product introduction strategies such as product replacement, line extension, and upgrading. We find that the optimal response to a threat of competitive clones is to increase the level of product innovation. This increase in innovation coupled with the entry of a competitive product implies that the incumbent firm has less of an incentive to leapfrog the old product or shelve the new product.