Abstract:

Introduction of successive generation product in a duopoly market， the demand is driven by launch time of the next-generation product and product price of two generation products. Several consumer behaviors are also concerned， e.g. leapfrogging adopters whomore prefer the next-generation product when available-named the cannibalization effect， and switching adopters who repeat purchasing the next-generation product. Moreover， product policies of the competitor have also a great influence on the sales and revenue of the firm. Due to the impact of these interrelated factors and its dynamic， the methodology of system modeling and simulationis proposed to solve this problem. A system dynamic model is developed to study decision-making of launch time of the next generation product and pricing strategies for the two generation products. Beside the normal scenario of duopoly with equal bargain power， the scenario of two firms with unequal bargain power is also discussed. According to simulation results， either firm will benefit from accelerating its own next-generation product launch， although demand of the first-generation product is decreasing. Similar opinion is for pricing strategies of the first-generation product. Discounting the first-generation product after the second-generation product is launched， increases the sales of the first-generation product， however it has negative influence on the revenue of the firm. More important， increasing the influence of advertisement and word-of-mouth on potential consumers， keeping consumers active in word-of-mouth marketing campaign would allow firm to delay the launch time or offer higher price for the next-generation product. The firm can also benefit from word-of-mouth marketing strategies， which offer important insights about the firm’s sale efforts.

Key words: successive generations, duopoly, pricing, launch time, systems dynamic modeling