A study on the life of an innovative product using a Bayesian approach

In this paper, the life cycle of an innovative product is divided into three stages, where a nonhomogeneous Poisson process (NHPP) with a power law intensity function is employed to illustrate the entry process of rival firms in a competitive market. The effects of the competitors' entry on the profits of the incumbent firm are taken into consideration, with an objective of deriving the optimal product life to maximize the incumbent's profit. Furthermore, a case study of a new type of LCD (liquid-crystal display) TV is empirically investigated to examine the effectiveness of the proposed approach. The results of the posterior analysis suggest that the influence of the competitors' entry on the optimal product life is overestimated in the prior analysis. The results of sensitivity analyses indicate that the effect of competition of the introduction and growth stages on the optimal product life is greater than that of the maturation stage on the optimal product life, which is subsequently greater than that of the decline stage on the optimal product life.