Quality Competition and Entry Deterrence: When to Launch an Extra Brand
cege Discussion Papers Number 223
25 Pages Posted: 25 Nov 2014
Date Written: November 24, 2014
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.
Keywords: Multiproduct firms, quality competition, vertical product differentiation, entry accommodation, entry deterrence.
JEL Classification: L13, D43, M31
Suggested Citation: Suggested Citation