A company is planning on launching a new product. It was thinking of launching in June of next year, but it believes that a rival is also considering launching a similar product around that time. The company is considering bringing the launch forward to the end of this year. This will cost an extra $3M to carry out and the company believes it will have a 0.8 probability of beating the rival to the market. If, however, they wait until June, the probability of beating the rival falls to 0.2. To make the decision easier, the company assumes that sales will be either high, medium or low. If the company beats its rival, the probability of high sales is 0.6, the probability of medium sales is 0.25, and the probability of low sales is 0.15. If it doesn’t beat its rival, the probability of high sales falls to 0.35, medium sales rises to 0.45, and low sales rises to 0.2. The financial impacts are that high sales would be worth $9M, medium would be worth $5M and low, $1M. What’s the optimal strategy based on EMV criterion?
A company is planning on launching a new product. It was thinking of launching in June of next year, but it believes that a rival is also considering launching a similar product around that time. The company is considering bringing the launch forward to the end of this year. This will cost an extra $3M to carry out and the company believes it will have a 0.8 probability of beating the rival to the market. If, however, they wait until June, the probability of beating the rival falls to 0.2.
To make the decision easier, the company assumes that sales will be either high, medium or low. If the company beats its rival, the probability of high sales is 0.6, the probability of medium sales is 0.25, and the probability of low sales is 0.15. If it doesn’t beat its rival, the probability of high sales falls to 0.35, medium sales rises to 0.45, and low sales rises to 0.2.
The financial impacts are that high sales would be worth $9M, medium would be worth $5M and low, $1M.
What’s the optimal strategy based on EMV criterion?
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