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Incumbent positioning as a determinant of strategic response to entry

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  • Peter-J. Jost
  • Stefanie Schubert
  • Miriam Zschoche

Abstract

Existing research has identified different firm characteristics that determine an incumbent’s reaction toward market entrants. This study widens the perspective from a firm’s absolute attributes to its relative positioning within its competitive environment. The hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation. In each of the two theoretical models two incumbents initially choose very different quality and variety levels, respectively, and move closer to the center when faced by entry of a competitor. From the vertical differentiation model we predict a stronger price reduction by high-quality firms. In our empirical analysis we are using a novel dataset of the high-quality restaurant market in Germany to test the theoretical findings. While the hypotheses with respect to adjustments of prices and varieties are supported, we do not find empirical evidence for the predicted quality adjustment. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Peter-J. Jost & Stefanie Schubert & Miriam Zschoche, 2015. "Incumbent positioning as a determinant of strategic response to entry," Small Business Economics, Springer, vol. 44(3), pages 577-596, March.
    • Handle: RePEc:kap:sbusec:v:44:y:2015:i:3:p:577-596
    DOI: 10.1007/s11187-014-9609-x
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    Cited by:

    1. David P. Baron, 2021. "Dynamic positioning, product innovation, and entry in a vertically differentiated market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 287-307, May.

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    More about this item

    Keywords

    Market entry; Incumbent response; Competitive positioning; Product differentiation; L11; L13; L80; L26;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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