The Optimal Timing of the Introduction of New Products

This paper addresses the e¤ects for partial equilibrium models of relaxing one of the critical underlying assumptions of the textbook approach (Dixit and Pyndick, 1994) to investment under uncertainty: either the potential investor has access to a single project or she can consider competing (or complementary) projects independently. This paper studies the investment decision of a multi-product monopolist where the projects exhibit interdepen- dence between the cash ‡ows of di¤erent products. We derive the optimal entry time for each product and show that both the choice and timing of investment is di¤erent from that suggested by the textbook approach. The decision to produce related goods simultaneously or sequentially crucially depends on their degree of substitutability or complementarity.