Popularity and Debut

Abstract:     
This paper focuses on the impact of brand popularity on two firms' optimal entry strategies into an emerging industry. Brand popularity shows the proportion of consumers holding an affinity towards one firm's product or the other. Word of mouth effects influence the distribution of preferences between periods, in turn expected profits. I show that differences in popularity give firms dissimilar incentives to lead or to follow, which affects their strategic choices of timing of entry when fast introduction is costly. I study the subgame perfect equilibria of the game to observe how they connect to popularity, strength of word of mouth communication, and consumer heterogeneity. The paper shows for which markets the asymmetry in the duopoly should be expected to increase or decrease. The model is extended to study how pre-ordering influences the efficiency of the industry.

Number of Pages in PDF File: 32

Keywords: Product introduction, word-of-mouth communication, technological change, product differentiation

JEL Classification: D83, L11, O33

working papers series