New Product Diffusion Decisions Under Supply Constraints

New Product Diffusion Decisions Under Supply Constraints

0.00 Avg rating0 Votes
Article ID: iaor201110166
Volume: 57
Issue: 10
Start Page Number: 1802
End Page Number: 1810
Publication Date: Oct 2011
Journal: Management Science
Authors: , ,
Keywords: pricing, diffusion models, new product development
Abstract:

Two recent papers on managing new product diffusion decisions under production constraints reach somewhat contradictory conclusions. Ho et al. (2002) show that it is never optimal to refuse to satisfy any customers when the firm has inventory of the product. On the other hand, in a very similar model, Kumar and Swaminathan (2003) show that production constraints may in fact lead a firm to reject customers' orders even when the firm has the inventory to satisfy them (to slow down new product diffusion). We provide a counterexample to the results of Ho et al. (2002) and show that in their and Kumar and Swaminathan's (2003) models, it may be optimal to deny customers a product in inventory. We provide a generalization of both models that includes the ability to dynamically price the product (and also allows capacity and production costs to vary over time). We show that the unintuitive but optimal behavior of denying customers products that are in inventory disappears when the firm can dynamically set prices.

Reviews

Required fields are marked *. Your email address will not be published.