Real Options Analysis Of New Product Investment Under Bass Model

Since the propostion of the new product expansion Bass model, this model obtained widely application.The model has fully reflected the market demand characteristic of new products. Under the Bass model, new product production investment has the general characteristic of the usual investment, therefore, we may use real options basic method to conduct the research. However, new product investment under Bass model has many unique features, these unique features lead to new product investment decision-making questions under Bass model to be different with the standard real options theory research. The results show that these unique features and differences really results from the market demand characteristic of new products .Meanwhile, revealing these unique features of new products investment under Bass model and these differences of the investment decision-making can enrich the standard real options theory research contents. The paper mainly aims at investment decision-making of new products under Bass model and carry out some research.First, we explore new product investment decision-making features under Bass model. The results show investments under Bass model are the same as usual investments, and have the uncertainties .We demonstrate the feasibility of applying the real options standard method of decision-making to investment analysis in the paper.Later, we discuss the investment capacity of manufacture and new products average market demand under Bass model, and choose a special investment capacity (new products average market demand )to analyse the investment decision-making under this investment capacity.Studies reflect market demand characteristics of the new products to have effect on investment capacity and thus affect investment decisions. Comparing with the standard real options theory, these differences precisely reflect unique features of new product investment decisions under Bass model. Meanwhile, the study also shows that selection of T is subjective, but not arbitrary, and T has effect on the evaluation functions in the studies.