Price competition and innovation diffusion in an oligopolistic market

The present paper considers the problem of marketing payoff estimation for innovative products. An assessment on literature shows that estimating future cash flows is an important issue for valuation. Although innovation diffusion models are useful to tackle this issue, present research seem more proper for dealing with monopolistic markets or monopolistic competition as competitor actions have little influence on a company’s market payoff. Motivated by the practical relevance and the gap in the current literature on innovation diffusion and future cash flows estimation, we developed a game theoretical model based on General Bass Model (GBM) for predicting innovation’s potential reward throughout its life-cycle in oligopolistic markets. We focus our analysis on the case in which two technologies are launched into market at the same time. First we analyze price competition without considering potential advertizing decisions. Second we analyze advertizing competition assuming constant profit margins. We discuss the impact of results obtained on management decisions and point out directions for future research.