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Product Launches and Buying Frenzies: A Dynamic Perspective

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  • Pascal Courty
  • Javad Nasiry

Abstract

type="main" xml:id="poms12394-abs-0001"> Buying frenzies caused by a firm's intentional undersupplying of a new product are frequently evident in several industries including electronics (cell phones, video games), luxury automobiles, and fashion goods. We develop a dynamic model of buying frenzies that incorporates the firm's manufacturing and sale of a product over time and characterizes the conditions under which inducing such frenzies is an optimal strategy. We find that buying frenzies occur when customers are sufficiently uncertain about their valuations of the product and when they discount the future sufficiently but not excessively. We propose measures of “customer desperation” and of the extent of scarcity to measure the depth and breadth of buying frenzies, respectively. We also demonstrate that such frenzies can have a significantly positive effect on firm profits and partially recover the loss due to non-commitment to future prices. This study provides managerial insights on how firms can influence market response to a new product through production, pricing, and inventory decisions to induce profitable frenzies.

Suggested Citation

  • Pascal Courty & Javad Nasiry, 2016. "Product Launches and Buying Frenzies: A Dynamic Perspective," Production and Operations Management, Production and Operations Management Society, vol. 25(1), pages 143-152, January.
    • Handle: RePEc:bla:popmgt:v:25:y:2016:i:1:p:143-152
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    File URL: http://hdl.handle.net/10.1111/poms.2016.25.issue-1
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    Cited by:

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    3. Lusi Yang & Zhiyi Wang & Jungpil Hahn, 2020. "Scarcity Strategy in Crowdfunding: An Empirical Exploration of Reward Limits," Information Systems Research, INFORMS, vol. 31(4), pages 1107-1131, December.
    4. Liu, Ting & Schiraldi, Pasquale, 2014. "Buying frenzies in durable-goods markets," European Economic Review, Elsevier, vol. 70(C), pages 1-16.
    5. Vikander Nick, 2019. "Sellouts, Beliefs, and Bandwagon Behavior," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-21, January.
    6. Alexander Salmen, 2021. "New Product Launch Success: A Literature Review," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 69(1), pages 151-176.
    7. Kogan, Konstantin & Herbon, Avi, 2022. "Retailing under panic buying and consumer stockpiling: Can governmental intervention make a difference?," International Journal of Production Economics, Elsevier, vol. 254(C).
    8. Zheng, Rui & Shou, Biying & Yang, Jun, 2021. "Supply disruption management under consumer panic buying and social learning effects," Omega, Elsevier, vol. 101(C).
    9. Yiangos Papanastasiou, 2020. "Newsvendor Decisions with Two-Sided Learning," Management Science, INFORMS, vol. 66(11), pages 5408-5426, November.
    10. Kenan Arifoğlu & Sarang Deo & Seyed M. R. Iravani, 2020. "Markdowns in Seasonal Conspicuous Goods," Marketing Science, INFORMS, vol. 39(5), pages 1016-1029, September.
    11. Yifan Jiao & Christopher S. Tang & Jingqi Wang, 2022. "An empirical study of play duration and in‐app purchase behavior in mobile games," Production and Operations Management, Production and Operations Management Society, vol. 31(9), pages 3435-3456, September.

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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