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Quality competition and entry deterrence: When to launch an extra brand

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  • Müller, Stephan
  • Götz, Georg

Abstract

In this paper, we study the rational for an incumbent to launch a second brand when facing potential entry in a market with quality differentiated products and a fringe producer. Depending on market size, costs for a second brand and a potential entrant's setup cost the incumbent might use a second brand both when deterring and when accommodating entry. The analysis generates predictions about the equilibrium degree of product differentiation, the presence of a multiproduct incumbent, and the determinants of successful entry.

Suggested Citation

  • Müller, Stephan & Götz, Georg, 2014. "Quality competition and entry deterrence: When to launch an extra brand," University of Göttingen Working Papers in Economics 223, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:223
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    References listed on IDEAS

    as
    1. Gilbert, Richard J., 1989. "Mobility barriers and the value of incumbency," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 8, pages 475-535, Elsevier.
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    3. Bonnisseau Jean-Marc & Lahmandi-Ayed Rim, 2006. "Vertical Differentiation: Multiproduct Strategy to Face Entry?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-16, November.
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    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    multiproduct firms; quality competition; vertical product differentiation; entry accommodation; entry deterrence;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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