Decisions on pricing, capacity investment, and introduction timing of new product generations in a durable-good monopoly

Richard F. Hartl*, Peter M. Kort, Andrea Seidl

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)

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.
Original languageEnglish
Pages (from-to)497-519
JournalCentral European Journal of Operations Research
Volume28
Issue number2
DOIs
Publication statusPublished - Jun 2020

Keywords

  • Capacity investments
  • Durable goods
  • Introduction of new product generation

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