We　examine　the　problem　of　optimal　capacity　reservation　policy　on　innovative　product　in　a　setting　of　one　supplier　and　one　retailer.　The　parameters　of　capacity　reservation　policy　are　two　dimensional:　reservation　price　and　excess　capacity　that　the　supplier　will　have　in　additional　to　the　reservation　amount.　The　above　problem　is　analyzed　using　a　two-stage　Stackelberg　game.　In　the　first　stage,　the　supplier　announces　the　capacity　reservation　policy.　The　retailer　forecasts　the　future　demand　and　then　determines　the　reservation　amount.　After　receiving　the　reservation　amount,　the　supplier　expands　the　capacity.　In　the　second　stage,　the　uncertainty　in　demand　is　resolved　and　the　retailer　places　a　firm　order.　The　supplier　salvages　the　excess　capacity　and　the　associated　payments　are　made.　In　the　paper,　with　exogenous　reservation　price　or　exogenous　excess　capacity　level,　we　study　the　optimal　expansion　policy　and　then　investigate　the　impacts　of　reservation　price　or　excess　capacity　level　on　the　optimal　strategies.　Finally,　we　characterize　Nash　Equilibrium　and　derive　the　optimal　capacity　reservation　policy,　in　which　the　supplier　will　adopt　exact　capacity　expansion　policy.