Endogenous Price Leadership and Product Positioning

This paper models the timing of price competition in a differentiated duopoly as endogenously determined and studies the timing’s impact on the first-mover advantage in establishing product position. It is shown that a firm's location advantage—being closer to a majority of consumers—leads to the strategic disadvantage of leading in the price game. When product positioning occurs sequentially, endogenous timing in pricing results in the second entrant’s locating farther away from its rival; and, although the first entrant becomes the price leader, the magnitude of the advantage for the first mover in the location (entry) game is larger, as compared with the case of simultaneous pricing.