Modeling the impact of product preannouncements in the context of indirect network externalities

In many of the industries where durable products are used with complementary products, companies announce their new durable products long before their market introduction. This paper analyzes the rationale for product preannouncements in the context of indirect network externalities. A product preannouncement helps to build consumers' and program providers' prior-to-launch perceptions of the forthcoming product. We develop a model to analyze how those perceptions affect the new hardware product's penetration. After an empirical calibration of the model based on the CD audio market, we run simulations that show the strong impact of the prior-to-launch expectations of both actors on the long-term market success of the new product. While higher consumer expectations always induce a higher penetration rate in the long run, it might occur that the higher expectations amongst the providers of complementary products lead to a lower penetration rate if such expectations remain lower than the ones that consumers have. Consequently, product preannouncements should first target consumers and only be directed at program providers if they can succeed in creating highly favorable prior-to-launch expectations among this latter group. (C) 2001 Elsevier Science B.V. All rights reserved.