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Sequential Product Positioning Under Differential Costs

Author

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  • Rajeev K. Tyagi

    (Graduate School of Management, University of California, Irvine, California 92697)

Abstract

This paper examines the product positioning decisions of firms that enter a market sequentially and that have potentially different cost structures. It shows that if the first mover knows the second mover to have a lower production cost, it positions away from the most attractive location in the market; further, the larger the second-mover's cost advantage, the farther away the first mover positions from the most attractive location. The paper also models uncertainty in the first-mover's mind about the later-entrant's cost structure, and shows that an increase in this uncertainty (in the sense of mean-preserving spread) also makes the first mover position farther from the most attractive location in the market. Overall, this paper suggests that unless the first entrant in a market is certain that the later entrant will not have a superior cost structure, it may be better off leaving the best position in the market vacant and having a niche or fringe product.

Suggested Citation

  • Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
    • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:7:p:928-940
    DOI: 10.1287/mnsc.46.7.928.12038
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    References listed on IDEAS

    as
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