Purchasing a durable product without information about its performance is a risky task, involving prediction of future performance of the product and derivation of its expected utility.
Risk delays the timing of the purchase and hence slows the diffusion rate of new products.
It also reduces the willingness to pay and forces firms to reduce the price of the product at the beginning of the diffusion process. Even though they lost major clients as a direct result of the demonstrations, Cabletron s major competitions, namely HP, IBM and SUN, chose not to respond by offering demonstrations of their own products. In 1992 Borland introduced its new Quattro Pro version 4 for Windows. Observing that different firms in different competitive environments react in dissimilar manners to a rival s product demonstrations, in this paper we investigate the following issues. When a competitor enters the market with a new product, how should the incumbent react in terms of product demonstration, and does this reaction depend on the new entrant s demonstration decisions.