Time‐to‐market in vertically differentiated industries

Abstract

This paper analyzes the optimal time to introduce a new product in a vertical differentiated market when the delay between innovation and market opening can be shortened through investments whose costs increase, the shorter the desired delay. The timing process is affected by the trade-off between being first and getting monopoly profits, and postponing entry for reducing time-to-market costs. We study the balance of these forces and how this balance is influenced by market structure. In our model, it is possible a priori to observe at the optimal solution both a qualityupgrading equilibrium (first entering the market with the low quality good and then marketing the high quality variant) and quality-downgrading equilibrium (first entering the market with the high quality good and then marketing the low quality variant) while in the existing published literature a quality-upgrading equilibrium is always observed.The authors wish to thank M. L. Guerra, C. Zoli and an anonymous referee for helpful suggestions. 1 They might consist of improving the design cycle or shortening the production cycle time on using high-speed machining.2 Indeed, the higher the reduction to be expected in the time-to-market interval, the higher and the earlier the flow of profits, but also the higher these irreversible costs.

The Foundation of Market Quality Economics

“…Recently, however, the number of studies that are concerned with this issue has rapidly increased. For such studies, see also Yano and Dei (2006a, 2006b), Creane (2007), Dos Santos Ferreira and Dufourt (2007), and Bacciega, Gabszewicz, and Tarola (2007).…”

“…17 17 For formal treatments of the development of new markets, for example, see Yano and Dei (2006a, 2006b), Yano and Komatsubara (2006), and Bacchiega et al (2007). …”

Time to Market and Impatient Customers

“…As in Bacchiega et al (2007), we consider that firms bear a fixed cost of timing‐to‐market This assumption is appropriate when firms are engaged in advertising activities to improve updated quality. This fixed cost is equivalent to the fixed cost of quality improvement considered by Motta (1993).…”

Equilibrium Selection in the Yano Model of Price Leadership

“…4 4 For market quality economics, see also Yano (2008b). Other related studies are Bacchiega et al. (2007), Dos Santos Ferreira and Dufourt (2007), Ferrando et al.…”