Essays on Product Introduction

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Tao, Xuezhen
Sweeting, Andrew
This dissertation contributes to the study of product introduction from two aspects. Chapter 1 and 2 study firms’ strategic decisions in product release frequencies as well as their dynamic pricing and innovation decisions in the flagship smartphone market. Chapter 3 studies consumers’ multi-version consumption in response to periodic new product releases in the video game industry. In Chapter 1, I extend the dynamic innovation framework developed by \cite{ericson1995markov} by incorporating firms' choices of their product release timing. In this new framework, firms first commit to their product release frequencies, then based on their committed schedules, I solve for their pricing and innovation decisions upon each product release. The welfare analysis in the counterfactual analysis shows that when the market shift from the duopoly to a monopoly, social welfare improves as higher innovation dominates higher prices and slower releases in welfare impact. In Chapter 2, I adopt the framework developed in Chapter 1, and further extend the discussion to provide managerial implications on firms’ optimal product release strategies in two dimensions: staggering in product release timing, and maintaining regular release schedules. Based on the simulated market outcome, firms should stagger their product releases with others and maintain the regular form of their release schedules. In Chapter 3, I study consumers’ responses to firms’ new product releases in the video game industries. Video game players are observed to continue playing their old games even after their new purchases, which contrasts with the single-product consumption assumption in the existing durable good literature. This paper develops a new framework where video game players allocate their playing time within their game portfolios based on a latent variable, ``game preference.'' The game preference is constructed to be flexible as it captures both contemporaneous heterogeneities across game versions and game modes, and also intertemporal heterogeneities across individuals like past gaming activities. We estimate the model parameters based on the data provided by Wharton Consumer Analytic Initiatives and report how our model fits the data pattern in three dimensions: game purchase decisions, game play decisions and game duration.