Why Are Bad Products So Hard to Kill?
Name
Simester_Why are.pdf
Size
440.22 KB
Format
Adobe PDF
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Author(s)
Simester, Duncan
Zhang, Juanjuan
Date Issued
May 2010
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Simester, D., and J. Zhang. “Why Are Bad Products So Hard to Kill?” Management Science 56.7 (2010): 1161–1179.
Version
Author's final manuscript
Abstract
It is puzzling that firms often continue to invest in product development projects when they should know that demand will be low. We argue that bad products are hard to kill because firms face an inherent conflict when designing managers' incentives. Rewarding success encourages managers to forge ahead even when demand is low. To avoid investing in low-demand products, the firm must also reward decisions to kill products. However, rewarding managers for killing products effectively undermines the rewards for success. The inability to resolve this tension forces the firm to choose between paying an even larger bonus for success and accepting continued investment in low-demand products. We explore the boundaries of this argument by analyzing how the timing of demand information affects product investment decisions.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1287/mnsc.1100.1169
