Demonstrations and Price Competition in New Product Release

Raphael Boleslavsky (), Christopher Cotton and Haresh Gurnani ()
Additional contact information
Raphael Boleslavsky: Department of Economics, University of Miami, Coral Gables, Florida 33146
Haresh Gurnani: School of Business, Center for Retail Innovation, Wake Forest University, Winston-Salem, North Carolina 27106

Management Science, 2017, vol. 63, issue 6, 2016-2026

Abstract: We incorporate product demonstrations into a game theoretic model of price competition. Demonstrations may include product samples, trials, return policies, online review platforms, or any other means by which a firm allows consumers to learn about their value for a new product. In our model, demonstrations help individual consumers to learn whether they prefer an innovative product over an established alternative. The innovative firm controls demonstration informativeness. When the innovative firm commits to demonstration policies and there is flexibility in prices, the firm is best off offering fully informative demonstrations that divide the market and dampen price competition. In contrast, when a firm can adjust its demonstration strategy in response to prices, the firm prefers only partially informative demonstrations, designed to maximize its market share. Such a strategy can generate the monopoly profit for the innovative firm. We contrast the strategic role of demonstrations in our framework with the strategic role of capacity limits in models of judo economics, which also allow firms to divide a market and reduce competition.

Keywords: judo economics; Bertrand competition; marketing strategy; product demonstrations; money-back guarantees; return policies; product reviews (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2016.2449 (application/pdf)

Related works:
Working Paper: Demonstrations And Price Competition In New Product Release (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:6:p:2016-2026

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().