Networks

In many markets it is common for multiple companies plan to release similar products around the same time. In his Financial Chronicle article, “How Game Theory Affects Entrepreneurial Decisions”, Varun Dutt the important aspects of timing a release of a product and how game theory can be used to maximize success. According to Varun, each company releasing a product has three choices: pre-pone the release, postpone the release, or stick to the original schedule. In a cooperative market, companies could work together to plan their releases in order to not interfere with each other and maximize the success of their products. However, today’s market is mainly a non-cooperative (competitive) one. If two products are released at the same time, most often there is one outcome: success for one product, losses for the other. Companies in a non-cooperative market must rely on game theory to decide which actions to make that would maximize their marketing efficiency and sales.

Game theory is used not only to plan when to release a product based on consumer demand, but also to predict in which order companies should release their products in order to maximize payoffs for each company. In his chron.com article, “The Importance of Timing for a New Product Launch”, Neil Kokemuller describes the different aspects a company must consider when timing for a new product launch. One very important aspect that involves game theory is competitor launches. Neil states that companies generally fall into two categories: “first-movers” and “second-movers”. Both categories have different payouts depending on the action of the company. First-movers try to be the first to release their product to the market in order to attract buyers. Second-movers wait to launch their products until the market becomes familiar with the first-mover’s product features and demand begins to grow. The second-mover would be considered the defensive action, as it protects the company against any negative responses that result from the first-mover’s version of the product. Companies use game theory to decide whether being a first-mover or second-mover is the best response based on what other companies might decide.

References:

1. http://smallbusiness.chron.com/importance-timing-new-product-launch-66014.html