Truth or Consequences: An Analysis of Vaporware and New Product Announcements

Abstract

The possible predatory and anti-competitive implications of announcing new products well in advance of actual market availability has lead to allegations that firms are intentionally engaging in vaporware. This issue recently surfaced in the antitrust case United States v. Microsoft Corporation. In this paper, we consider the possibility that intentional vaporware is a way to discourage competitors from developing their own competing new products. An empirical examination of data for the packaged software industry confirms that some firms may use vaporware in a strategic manner. We formulate and analyze a game theoretic model for the preannouncement and introduction timing decisions of two firms. We find that vaporware can be a way for a dominant firm to signal its product development costs, and that intentional vaporware can deter entry. We show that there is a curvilinear relationship between product development costs and announcement accuracy, i.e., firm with high or very low costs make accurate announcements while firms with intermediate costs desire to intentionally engage in vaporware. Empirical support for these results is also found in the software data. We discuss the beneficial and harmful consequences of vaporware, as well as the associated implications.

Note: This is a description of the article and not the actual abstract.

Keywords: Antitrust; Software; Vaporware; Signalling Model; Game Theory

JEL Classification: L4, K0, C7, M3