Selling innovative products in the presence of externalities

Yufei Huang, Bilal Gokpinar, Christopher S. Tang, Onesun Steve Yoo

Research output: Contribution to journalArticle

Abstract

When deciding whether to adopt an innovative product or service, consumers often experience different levels of anxiety that prompt them to resist purchase (e.g., fear of learning new technologies, disruption of established habits or beliefs). In such cases, consumers’ anxiety is mitigated by “validation” through externality (e.g., the number of early adopters). To reduce consumers’ anxiety, firms can also invest in “familiarization” through promotion (e.g., offering free trials). We conceptualize innovation as a product that engenders anxiety, and present a model that employs a consumer utility model focusing on the psychological dimension. We examine the firm’s profit-maximizing promotion and pricing decisions when selling to forward-looking consumers in the presence of externality. Our equilibrium analysis reveals that, unlike the conventional wisdom for promoting new products, for anxiety-inducing innovations with externality, accelerating the speed of adoption through promotion can actually be detrimental to the firm.
LanguageEnglish
Pages1236-1250
Number of pages35
JournalProduction and Operations Management
Volume27
Issue number7
Early online date28 Feb 2018
DOIs
StatusPublished - 1 Jul 2018

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Sales
Innovation
Profitability
Costs
Anxiety
Externalities

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Huang, Y., Gokpinar, B., Tang, C. S., & Yoo, O. S. (2018). Selling innovative products in the presence of externalities. Production and Operations Management , 27(7), 1236-1250. DOI: 10.1111/poms.12864

Selling innovative products in the presence of externalities. / Huang, Yufei; Gokpinar, Bilal; Tang, Christopher S.; Yoo, Onesun Steve.

In: Production and Operations Management , Vol. 27, No. 7, 01.07.2018, p. 1236-1250.

Research output: Contribution to journalArticle

Huang, Y, Gokpinar, B, Tang, CS & Yoo, OS 2018, 'Selling innovative products in the presence of externalities' Production and Operations Management , vol. 27, no. 7, pp. 1236-1250. DOI: 10.1111/poms.12864
Huang Y, Gokpinar B, Tang CS, Yoo OS. Selling innovative products in the presence of externalities. Production and Operations Management . 2018 Jul 1;27(7):1236-1250. Available from, DOI: 10.1111/poms.12864
Huang, Yufei ; Gokpinar, Bilal ; Tang, Christopher S. ; Yoo, Onesun Steve. / Selling innovative products in the presence of externalities. In: Production and Operations Management . 2018 ; Vol. 27, No. 7. pp. 1236-1250
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