A study on selling intergenerational products under competition

This study considers an incumbent manufacturer that sells both new and old versions of products, and competes with a rival manufacturer that sells a similar competitive product in the market. It investigates the impact that both internal and external competition between these products has on the manufacturers’ pricing strategies. We assume that the transition period is the planning time for product sales, during which the old-version products would not be replenished if they are sold out. The contribution of this study is that the equilibrium prices at different moments for the incumbent and rival manufacturers are obtained by considering both the customer purchase probability and the diffusion model in predicting the demand for each product, with the aim of maximizing the expected profits of both manufacturers. Moreover, this study also considers the scenario in which the incumbent manufacturer uses the trade-in strategy of replacing the older-generation product with the newer version, and the rival manufacturer responds with the markdown strategy of periodically reducing the price. The results show that the price reduction of the rival manufacturer is inversely related to the price of the competitive product, the price gap between the competitive product and the newer product, and the inventory cost.