Product introduction decisions in a duopoly

In this paper we model a dynamic environment with two firms that fight for share of industry sales and profit in a market with constant size. They capture share by repeatedly introducing new products. Price changes from period to period reflecting each firm's learning. We formulate the problem as a repeated game, where each player's decision at each period is to introduce a new product. We find that, in general, each firm's frequency of product introductions (clockspeed) in equilibrium decreases as its fixed product introduction cost increases. Further, we find that a higher rate of manufacturing learning results in a higher clockspeed and in a higher market share, and also results in significantly worse profits for the competitor. The results underscore the importance of manufacturing expertise in a firm's ability to introduce new products.