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New Product Diffusion Decisions Under Supply Constraints

Author

Listed:
  • Wenjing Shen

    (LeBow College of Business, Drexel University, Philadelphia, Pennsylvania 19104)

  • Izak Duenyas

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

  • Roman Kapuscinski

    (Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109)

Abstract

Two recent papers on managing new product diffusion decisions under production constraints reach somewhat contradictory conclusions. Ho et al. (Ho, T.-H., S. Savin, C. Terwiesch. 2002. Managing demand and sales dynamics in new product diffusion under supply constraint. Management Sci. 48 (2) 187-206) show that it is never optimal to refuse to satisfy any customers when the firm has inventory of the product. On the other hand, in a very similar model, Kumar and Swaminathan (Kumar, S., J. M. Swaminathan. 2003. Diffusion of innovations under supply constraints. Oper. Res. 51 (6) 866-879) show that production constraints may in fact lead a firm to reject customers' orders even when the firm has the inventory to satisfy them (to slow down new product diffusion). We provide a counterexample to the results of Ho et al. (2002) and show that in their and Kumar and Swaminathan's (2003) models, it may be optimal to deny customers a product in inventory. We provide a generalization of both models that includes the ability to dynamically price the product (and also allows capacity and production costs to vary over time). We show that the unintuitive but optimal behavior of denying customers products that are in inventory disappears when the firm can dynamically set prices. This paper was accepted by Candace A. Yano, operations and supply chain management.

Suggested Citation

  • Wenjing Shen & Izak Duenyas & Roman Kapuscinski, 2011. "New Product Diffusion Decisions Under Supply Constraints," Management Science, INFORMS, vol. 57(10), pages 1802-1810, October.
    • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:10:p:1802-1810
    DOI: 10.1287/mnsc.1100.1277
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    References listed on IDEAS

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    1. Teck-Hua Ho & Sergei Savin & Christian Terwiesch, 2002. "Managing Demand and Sales Dynamics in New Product Diffusion Under Supply Constraint," Management Science, INFORMS, vol. 48(2), pages 187-206, February.
    2. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    3. Sunil Kumar & Jayashankar M. Swaminathan, 2003. "Diffusion of Innovations Under Supply Constraints," Operations Research, INFORMS, vol. 51(6), pages 866-879, December.
    4. Trichy V. Krishnan & Frank M. Bass & Dipak C. Jain, 1999. "Optimal Pricing Strategy for New Products," Management Science, INFORMS, vol. 45(12), pages 1650-1663, December.
    5. Bruce Robinson & Chet Lakhani, 1975. "Dynamic Price Models for New-Product Planning," Management Science, INFORMS, vol. 21(10), pages 1113-1122, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Teck-Hua Ho & Sergei Savin & Christian Terwiesch, 2011. "Note: A Reply to "New Product Diffusion Decisions Under Supply Constraints"," Management Science, INFORMS, vol. 57(10), pages 1811-1812, October.
    2. Eryn Juan He & Joel Goh, 2022. "Profit or Growth? Dynamic Order Allocation in a Hybrid Workforce," Management Science, INFORMS, vol. 68(8), pages 5891-5906, August.
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    5. Bayrak, Busra & Guray, Busra & Uzunlar, Nilsu & Nadar, Emre, 2024. "Diffusion control in closed-loop supply chains: Successive product generations," International Journal of Production Economics, Elsevier, vol. 268(C).
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    7. A. Negahban & J.S. Smith, 2016. "The effect of supply and demand uncertainties on the optimal production and sales plans for new products," International Journal of Production Research, Taylor & Francis Journals, vol. 54(13), pages 3852-3869, July.
    8. Schwarz, Justus Arne & Tan, Barış, 2021. "Optimal sales and production rollover strategies under capacity constraints," European Journal of Operational Research, Elsevier, vol. 294(2), pages 507-524.
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    11. Wenjing Shen & Izak Duenyas & Roman Kapuscinski, 2014. "Optimal Pricing, Production, and Inventory for New Product Diffusion Under Supply Constraints," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 28-45, February.
    12. Negahban, Ashkan & Smith, Jeffrey S., 2018. "Optimal production-sales policies and entry time for successive generations of new products," International Journal of Production Economics, Elsevier, vol. 199(C), pages 220-232.
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