Researchers Investigate Console War Biz Model

The Cox School of Business at Southern Methodist University has completed a new research project, spearheaded by information technology professors Sreekumar Bhaskaran and Karthik Ramachandran, into competitive factors that firms must take into account when planning product launch decisions -- citing the ongoing video game console war as a case-in-point. Says Bhaskaran, "The expert consensus in 2005 was that Microsoft would be the early bird, but PS3 would be the superior console. Examples like these in competitive industries beg the question: How do - and how should - firms decide to launch new products in very technologically driven, highly competitive markets?” The researchers say they've developed a model in which competing firms have two options: one, to develop a new product based on available and proven technology; or, to branch out and take a risk at developing something new. For example, Sony could have waited to observe Microsoft's performance in the market and launch the new PlayStation accordingly, or they could have pushed out a new product quickly to compete directly. Says Ramachandran, "If they make the choice to wait (and continue to improve their product) based solely on internal analysis of their own development capability, this can lead to a pitfall -- a suboptimal launch decision. With Microsoft in their rear view, how does Sony incorporate Microsoft's possible moves into their own console development and launch decisions?" Summarily, firms should take into account one another's reactions in managerial decision-making. The researchers concluded that the worst possible decision is for rivals to mimic one another, accidentally or otherwise. Additionally, should two competitors delay product introduction at the same time, it causes a "collision" in the competitive market space -- for example, the researchers pointed to the ongoing console price wars. The researchers also challenged the idea that a rival's technological advances will necessarily spell losses or defeat for a product. Says Bhaskaran, "This is not true when you have strategic competitors and incorporate their behavior into your decision making. When your competitor can increase quality rapidly, there is a greater incentive for that rival to delay product introduction - which you can gain from!" For example, he continued, "When Sony decided to improve the PlayStation and launch in the following year, Microsoft had a window of a year to charge premium prices and establish a presence. Consequently, even though Sony's technology prospects improved, Microsoft benefited by Sony waiting to build the better product." Ramachandran said that failing to respond to competitors' movements could mean "you miss the golden opportunity."