Managing Successive Generation Product Diffusion in the Presence of Strategic Consumers

Frequent new product release and technological uncertainty about the release time pose significant challenges for firms to manage successive generation of products. On the one hand, strategic consumers may delay their purchase decision and substitute the earlier generation with the newer generation product. On the other hand, the firm must fully anticipate consumer reactions and take into account the effect of their strategic behavior on product pricing and successive generation product diffusion. This paper proposes a prediction market to forecast new product release. We show that the market information aggregation mechanism can improve forecast accuracy of new product launch. Better forecasting increases consumer surplus, firm revenue, and social welfare. 1