I have been continuously puzzled how EK got to this point. I would guess that most companies anticipating a monotonic decrease in demand for their product will immediately set a firm timeline to discontinue it. Perhaps let somebody else make the product if they'll pay a healthy fee, or raise the price right up to the point that it starts to choke off the demand (watch Fuji, they do get it). But then announce that it's being discontinued, take that last bit of profit from the final run on the product, and move on to another product with growing demand.
The absolute last thing any company wants is an excess of workers and dormant facilities and a lot of expiring inventory- that is certain death. In that case, you just take on more and more debt. So it's *far* better to err on the side of undersupply and high prices. But Kodak has not been anywhere close to that, as far as I can tell.
I guess the best explanation for what happened is that demand dried up much faster than they could scale down. But when you are in the business of designing the successor to your product, when you are cannibalizing your own market, you should know exactly how quickly the demand for one product is going down as the other goes up....
I guess they also assumed that their print business was going to take off. That also mystifies me, it's such an obvious mistake. Wasn't it obvious what the net and social networking were doing to print sales? Sharing kills print demand. Polaroid was already getting hammered by the same thing. People were already talking about megapixels on their phones... and digital pictures frames, for crying out loud. The appreciation for fine prints was very clearly being replaced by the desire to share low res images with everybody on earth via facebook and myspace (and now twitter). A lot more shots being taken, a lot fewer being printed.
Just a lot of really poor anticipation. Sad.