Strategic delay of product introductions

Abstract

We consider a durable goods monopolist’s optimal timing for a new product introduction with finite economic life. Within the product life, production technology can evolve, offering lower unit production costs in the later stages. The focus is to contrast the first-best socially optimal timing with which the product will be served to different types of consumers, with the profit-maximising market strategy of the monopolist, the latter being negatively affected by asymmetric information on the consumer types.

In the commitment regime where the monopolist can perfectly commit to inter-temporal price offers for the product announced at the outset and not to make any additional price offer in the future, we find that the monopolist may optimally resort to intertemporal price discrimination by “over-delaying” (relative to the first-best solution) the consumption of the low-type consumers given that future production cost savings are sufficiently high.

In the non-commitment regime where the monopolist cannot commit not to make future price offers after having made an initial announcement of intertemporal prices, we show that the monopoly equilibrium can exhibit two distortions: the consumption of the high-type consumers is over-delayed relative to the first best, and the low-type consumers stop participating in the market, while they would be served at the late stage of the product life in the first-best solution.

Key words: durable goods monopolist, dynamic pricing problem, intertemporal price discrimination, commitment problems

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