A model of product line design and introduction sequence with reservation utility |
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Authors: | Paul Lacourbe |
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Institution: | CEU Business School, Frankel Leo 30-34, Budapest 1023, Hungary |
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Abstract: | Cannibalization is a major concern for a firm when designing a product line. In addition, external options from outside the firm’s product line may also play a significant role. In this paper, we investigate the impact of external options, represented by reservation utility, on product line design and introduction sequence. We find that: (a) heterogeneous reservation utility defines the relative attractiveness of segments and corresponding product line; (b) reservation utility makes it more favorable to introduce products sequentially rather than simultaneously; (c) aggregating segments is an effective way to mitigate cannibalization when it becomes too difficult to manage with different values of reservation utility across multiple segments; and (d) introducing products in a non-monotone order of quality can improve profit from simultaneous introduction when the value of reservation utility of a middle segment is particularly high. |
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Keywords: | Product line design Vertical differentiation Introduction sequence External options Reservation utility |
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