The design and introduction of product lines when consumer valuations are uncertain

This article presents a model of the design and introduction of a product line when the firm is uncertain about consumer valuations for the products. We find that product line introduction strategy depends on this uncertainty. Specifically, under low levels of uncertainty the firm introduces both models during the first period; under higher levels of uncertainty, the firm prefers sequential introduction and delays design of the second product until the second period. Under intermediate levels of uncertainty the firm's first product should be of lower quality than one produced by a myopic firm that does not take product line effects into consideration. We find that when the firm introduces a product sequentially, the strategy might depend on realized demand. For example, if realized demand is high, the firm's second product should be a higher-end model; if demand turns out to be low, the firm's second product should be a lower-end model or replace the first product with a lower-end model

Data for: The Differential Effects of Time and Usage on the Brand Premiums of Automobiles

Longitudinal data on twin-cars pricesTHIS DATASET IS ARCHIVED AT DANS/EASY, BUT NOT ACCESSIBLE HERE. TO VIEW A LIST OF FILES AND ACCESS THE FILES IN THIS DATASET CLICK ON THE DOI-LINK ABOV

Complementary goods: creating, capturing, and competing for value

This paper studies the strategic interaction between firms producing strictly complementary products. With strict complements, a consumer derives positive utility only when both products are used together. We show that value-capture and value-creation problems arise when such products are developed and sold by separate firms (“nonintegrated” producers). Although the firms tend to price higher for given quality levels, their provision of quality is so low that, in equilibrium, prices are set well below what an integrated monopolist would choose. When one firm can mandate a royalty fee from the complementor producer (as often occurs in arrangements between hardware and software makers), we find that the value-capture problem is mitigated to some extent and consumer surplus rises. However, because royalty fees greatly reduce the incentives of the firm paying them to invest in quality, the arrangement exacerbates the value-creation problem and leads to even lower total quality. Surprisingly, this result can reverse with competition. Specifically, when the firm charging the royalty fee faces a vertically differentiated competitor, the value-creation problem is greatly reduced—opening the door for the possibility of a Pareto-improving outcome in which all firms and consumers benefit. It is worth noting that this outcome cannot be achieved by giving firms the option of introducing a line of product variants; competition serves as a necessary “commitment” ingredient

Overselling in a Competitive Environment: Boon or Bane?

In this paper, we study the practice of overselling in a competitive environment where late-arriving consumers value the good higher than early-arriving ones but the former's arrival is uncertain. We show that overselling is a dominant strategy for the firms. However, it can lead to a prisoners' dilemma situation in which all firms are worse off overselling. We further show that only when demand from the late consumers far exceeds the supply and there is a sufficiently high profit margin from reselling does overselling result in a Pareto-dominant outcome for the firms.overselling, overbooking, pricing, revenue management, competition, capacity constraints

easyJet® pricing strategy: Should low-fare airlines offer last-minute deals?

Airline pricing, Nonlinear pricing, Revenue management, Last minute deal, Dynamic pricing, D4, D9, L11, L12, L13, M3,

Designing digital rollovers: managing perceived obsolescence through release times

When releasing a new version of a durable product, a firm aims to attract new customers as well as persuadeits existing customer base to upgrade. This is commonly achieved through arollover strategy, which comprisesthe price of the new product as well as the decision to discontinue the sale of the existing product (solorollover) or to sell the existing product at a discounted price (dual rollover). In this paper, we argue thatthe timing of the new product release is an important—but commonly overlooked—third lever in the designof a successful rollover strategy. The release timing influences the consumers’ perception of obsolescence, bywhich an existing product is considered obsolete merely by reference to a new product. This reinforces theupgrading behavior of existing customers, but it also necessitates deep discounts of the existing product tokeep its sale viable in a dual rollover. We analyze the impact of the release timing on solo and dual rolloversin markets for digital goods (i.e., where production costs are negligible) that are composed of naive andsophisticated consumers. Under the assumption that both the old and the new product would offer a similarutility if there was no perceived obsolescence, we show that in both markets a firm selecting the release timesfrom a continuous timeline can induce sufficiently large parts of its existing customer base to upgrade so thata solo rollover is optimal. We also characterize the resulting market segmentation, and we offer managerialas well as policy advice