New product introduction against a predator: A bilevel mixed-integer programming approach

J. Cole Smith, Churlzu Lim, Aydin Alptekinǒglu

Research output: Contribution to journalArticle

21 Scopus citations

Abstract

We consider a scenario with two firms determining which products to develop and introduce to the market. In this problem, there exists a finite set of potential products and market segments. Each market segment has a preference list of products and will buy its most preferred product among those available. The firms play a Stackelberg game in which the leader firm first introduces a set of products, and the follower responds with its own set of products. The leader's goal is to maximize its profit subject to a product introduction budget, assuming that the follower will attempt to minimize the leader's profit using a budget of its own. We formulate this problem as a multistage integer program amenable to decomposition techniques. Using this formulation, we develop three variations of an exact mathematical programming method for solving the multistage problem, along with a family of heuristic procedures for estimating the follower solution. The efficacy of our approaches is demonstrated on randomly generated test instances. This article contributes to the operations research literature a multistage algorithm that directly addresses difficulties posed by degeneracy, and contributes to the product variety literature an exact optimization algorithm for a novel competitive product introduction problem.

Original languageEnglish (US)
Pages (from-to)714-729
Number of pages16
JournalNaval Research Logistics
Volume56
Issue number8
DOIs
StatePublished - Dec 1 2009

All Science Journal Classification (ASJC) codes

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

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