Late Product Release: The Strategic Benefit of Lost Sales

Internal seminar for researchers

Abstract: When a firm releases its product later than its competitor, the firm loses sales because many consumers prefer to buy the competitor’s product rather than wait for the firm’s product release. Therefore, in the absence of any late-mover advantages, the conventional wisdom suggests that both firms will release their products as soon as possible to start earning profits and avoid losing customers. Contrary to this intuition, we show that in equilibrium, a firm may actually release its product later than its competitor. The reason is that the firm’s late product release can help alleviate price competition, allowing both firms to charge higher equilibrium prices than when they release their products in the same period. We demonstrate that consumers’ dynamic tradeoffs and product purchase timing decisions play an important part in the competition-alleviation mechanism. Importantly, we characterize the market conditions under which the firm’s profit gain from alleviated price competition dominates its profit loss from reduced sales, making the firm better off by releasing its product later than the competitor. Interestingly, when the fraction of consumers who enter the market relatively early increases, the firm may gain even more incentives to release its product later. Finally, we demonstrate that when a firm has a quality advantage over its competitor, the high-quality firm may gain additional incentives to release relatively late, whereas the low-quality firm prefers to release its product earlier.