Optimal Dynamic Product Development and Launch for a Network of Customers

Nur Sunar (), John Birge and Sinit Vitavasiri ()
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Nur Sunar: Kenan–Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Sinit Vitavasiri: Ericsson, Inc., San Jose, California 95134

Operations Research, 2019, vol. 67, issue 3, 770-790

Abstract: Network products such as mobile apps and computer games are of paramount importance, as these products constitute a large value in today’s economy. Motivated by this observation, the paper “Optimal Dynamic Product Development and Launch for a Network of Customers” considers a firm that dynamically chooses its effort to develop a product for a network of customers represented by a connected graph. The technology of the product evolves as a stochastic process that depends on the firm’s dynamic efforts over time. In addition to dynamically choosing its development effort, the firm chooses when to launch or abandon the product. If the firm launches the product, the firm also chooses a selling price, a promotional price, and a target customer to offer the promotion to. Once the target customer adopts the product, the product diffuses over the customer network based on the topology of the graph and the selling price. The paper provides the explicit solution of the firm’s jointly optimal development, launch, and post-launch strategies for any connected network, and introduces metrics that allow ordering customer networks with respect to the firm’s optimal expected discounted profit, launch technology, and consumer surplus.

Keywords: dynamic product development; launch; product diffusion; stochastic optimal control; optimal stopping; graph (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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