Abstract: With the developing of science and technology, to compete for market share and increase revenue, manufacturers and retailers in durable goods industries introduce new upgraded products continuously and phase out old products frequently. However, those firms may face the challenges from forward-looking consumers who anticipate product improvement and seek to delay their purchase. So, it is interesting to investigate the suppliers' optimal upgrade strategy in the presence of consumers' strategic behavior through analyzing the two-period decisions optimization problem of consumers and firms in supply chain. Three upgrade strategies are analyzed:bundling upgrade strategy, component upgrade strategy and conformable upgrade strategy. In each strategy, the rational players make decisions by three stages during two periods. The supplier determines the unit wholesale price of the first-period new products in stage 1, period 1, and the price of the second-period products in stage 1, period 2. Then, the retailer decides the retailing price of products in stage 2, period 1 and period 2. At last, the strategic consumers make decisions of purchase in stage 3, period 1 and 2. By solving the two-stage complete information dynamic game backward, the optimal price decisions of firms could be got. With the target of profit maximization, it is found that the supplier prefers the components upgrade strategy to other strategies with the conditions of value loss of components upgrade and the patience of strategic consumers; otherwise, he or she will adopt the integration strategy, when the patience of strategic consumers is relatively low. Numerical studies are carried out to investigate the effect of supplier's upgrade strategy on retailer and supply chain's profit and to examining the key parameters' influences on the equilibrium solutions and firms' performances.

Key words: consumers' strategic behavior, utilities, product upgrade, bundling upgrade, component upgrade