Introduction Sequence with Functionality Threshold and Real Option

• Authors: Paul Lacourbe

Abstracts

EN

Existing literature on introduction sequence mostly argues against introducing a low-end product before a high-end product. In this paper, we present a simple model to show when it can be optimal to introduce a low-end product first. Based on some observations in industry, high-end consumers are not only wealthier, but also more demanding in quality. With this property, introducing a low-end product first without commitment would not cannibalize the high-end segment because it does not satisfy the quality requirements of the high-end consumers. We also allow for a stochastic environment: the firm may find it valuable to retain flexibility, or the so-called "real options", rather than make commitment about forthcoming products. With this model setup, we add a different perspective that it can be optimal to introduce a low-quality product first for purely marketing reasons. We show that functionality thresholds can play the same role as Piguovian third degree discrimination.

Keywords

EN

functionality thresholds; introduction sequence; real options; Piguovian third degree discrimination

• Publisher: Sciendo
• Journal: Issues of Business and Law
• Year: 2009
• Volume: 1
• Issue: 1
• Pages: 10-18

Contributors

author

Paul Lacourbe

• École Supérieure des Sciences Économiques et Commerciales, Avenue Hirsch, Cergy 95021, France

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Identifiers

DOI

10.2478/v10088-009-0002-0