Competitive interplay of production decisions: Rivalry between established and startup firms

Moren Levesque, Xuan Jen Zhao, Junsong Bian

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper's novelty is the modeling of competition in production quantity and product-launch timing, which has been silent regarding the impact of these interdependent decisions on firm survival. We rigorously address the competitive interplay between a startup and an established rival by developing a game-theoretic model that captures the startup's vulnerability to failure through maximizing its survival likelihood. We allow the established rival to behave strategically by anticipating the startup's timing and production decisions prior to making its own production decision. We propose that unless the market-entry investment is low, a survival-maximizing startup should wait to launch its product, and do so with a larger production output than the established rival, when delaying the product launch enables the startup to charge a high price. Insights on the established firm involve the benefit from behaving strategically, which is when competing with either a survival-maximizing or profit-maximizing startup. If the market-entry investment is large, comparing a survival-maximizing startup with a profit-maximizing startup suggests that the former produces at a larger scale than the latter when either startup competes with an established rival, which in turn is forced to reduce its production level.

LanguageEnglish
Article number8052140
Pages85-98
Number of pages14
JournalIEEE Transactions on Engineering Management
Volume65
Issue number1
DOIs
Publication statusPublished - Feb 2018

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Profitability
Start-up firms
Rivalry
Start-up
Product launch
Profit
Market entry

Keywords

  • Business startup
  • cournot competition
  • game theory
  • market entry timing
  • production decision
  • profit maximization
  • survival maximization

Cite this

Levesque, Moren ; Zhao, Xuan Jen ; Bian, Junsong. / Competitive interplay of production decisions : Rivalry between established and startup firms. In: IEEE Transactions on Engineering Management. 2018 ; Vol. 65, No. 1. pp. 85-98.
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Competitive interplay of production decisions : Rivalry between established and startup firms. / Levesque, Moren; Zhao, Xuan Jen; Bian, Junsong.

In: IEEE Transactions on Engineering Management, Vol. 65, No. 1, 8052140, 02.2018, p. 85-98.

Research output: Contribution to journalArticleResearchpeer-review

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