Decisions on pricing, capacity investment, and introduction timing of new product generations in a durable-good monopoly
Hartl,Richard F. Kort,Peter M. Seidl,Andrea
Hartl,Richard F.
Kort,Peter M.
Seidl,Andrea
Abstract
The aim of the present paper is to analyze how firms that sell durable goods should optimally combine continuous-time operational level planning with discrete decision making. In particular, a firm has to continuously adapt its capacity investments and sales strategy, but only at certain times it will introduce a new version of the durable good to the market. The launch of a new generation of the product attracts new customers. However, in order to be able to produce the new version, production facilities need to be adapted leading to a decrease of available production capacities. We find that the price of a given generation of a product decreases over time. A firm should increase its production capacity most upon introduction of a new product. The stock of potential consumers is largest then so that the market is most profitable. The extent to which existing capacity can still be used in the production process for the next generation has a non-monotonic effect on the time when a new version of the product is introduced as well as on the capital stock level at that time.
Description
Funding Information: Open access funding provided by University of Vienna.
Date
2020-06
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Capacity investments, Durable goods, Introduction of new product generation
Citation
Hartl, R F, Kort, P M & Seidl, A 2020, 'Decisions on pricing, capacity investment, and introduction timing of new product generations in a durable-good monopoly', Central European Journal of Operations Research, vol. 28, no. 2, pp. 497-519. https://doi.org/10.1007/s10100-019-00659-4
License
info:eu-repo/semantics/openAccess