Entering New Markets in the Presence of Competition: Price Discrimination versus Cannibalization

Siebert, Ralph

doi:10.1111/jems.12091

Cited by 22 publications

(19 citation statements)

References 43 publications

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“…Based on this motivation, we explore the impact of repositioning costs on price and quality competition in a duopoly model of vertical differentiation, with quality‐dependent setup costs. Many previous studies, including Moorthy (, ), Motta (), Lehmann‐Grube (), Jones and Mendelson (), and Siebert (), investigate the equilibrium outcomes in extensions of the standard vertical differentiation model . However, most of these studies assume that firms incur only those fixed costs that are proportional to their actual product quality.…”

Section: Introductionmentioning

confidence: 99%

Price and quality competition with quality positions

Kurokawa

Matsubayashi

2017

Economics Manag Strategy

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In this study, we investigate price and quality decisions in a duopoly in the presence of firms’ quality positions , which are determined by the quality levels of their existing core products. Into a standard model of vertical differentiation, we incorporate a “repositioning cost” that is proportional to the quality differences between firms’ current and new products. By varying the levels of quality positions, we analyze the impact of this cost on the equilibrium outcomes. Our results show that the presence of repositioning costs restricts firms’ abilities to improve profitability and differentiate themselves vertically. As a result, a high‐positioned firm does not necessarily have a competitive advantage over a low‐positioned firm, even if the former offers a superior new product in equilibrium. In addition, if a low‐positioned firm is significantly cost‐efficient compared with its rival with regard to repositioning, then that firm can earn higher profits than those of a high‐positioned firm by strategically offering its low‐end product. These results contrast sharply with those based on the standard vertical differentiation model.

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Section: Introductionmentioning

confidence: 99%

Price and quality competition with quality positions

Kurokawa

Matsubayashi

2017

Economics Manag Strategy

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“…Implicit in the construction of p a ( x a , θ a ) is the assumption that whiskies of different ages are not substitutes. While this may be a somewhat strong assumption, there is evidence to suggest that firms deliberately leave gaps in their product lines so as to differentiate their own products and avoid cannibalizing their profits (De Fraja, 1996; Siebert, 2015). This is supported by the composition of distilleries’ product lines.…”

Section: Optimal Maturationmentioning

confidence: 99%

Why Do Distilleries Produce Multiple Ages of Whisky?

Page

2019

J Wine Econ

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Vintage goods are a unique set of goods that accrue value over time. Unlike producers for many other vintage goods, Scottish distilleries often mature their stocks to different ages and sell a product line that varies significantly in quality. This article develops a theoretical model to examine this maturation strategy and identify market conditions under which a distillery would produce multiple ages of whisky. An empirical analysis of distilleries’ product lines confirms results from the model and highlights the determinants of variety and substitutability between brands. (JEL Classifications: D43, L13, L66)

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“…For recent discussions on a low-quality entrant, see Ishibashi and Matsushima (2009) and works cited by them. 6 With regard to the vertically differentiated setting, Bergemann and Välimäki (2002) and Siebert (2015) analyse the entry of new products, but the impact of an import quota on the potential entrant is not analysed. 7 If the two firms engage in Cournot game, an import quota set at the original monopoly level is useless.…”

Section: Free Tradementioning

confidence: 99%

“…With regard to the vertically differentiated setting, Bergemann and Välimäki () and Siebert () analyse the entry of new products, but the impact of an import quota on the potential entrant is not analysed.…”

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confidence: 99%

Entry and Import Quota

Tsai

Chiou

2016

Bulletin of Econ Res

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An import quota set stricter than the free trade level is quite common for the domestic entry protection. However, this paper shows that as the products are vertically differentiated, an import quota that is simply set at the original free trade level could be effective on entrant protection. This quota policy also improves both consumer surplus and total domestic welfare, which is in sharp contrast to the implications of existing literature. Our result suggests that an import quota has a stronger protection effect on domestic production if the domestic and foreign products are vertically differentiated.

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Entering New Markets in the Presence of Competition: Price Discrimination versus Cannibalization

Abstract: This study focuses on firms' optimal entry strategies in new markets

Cited by 22 publications

References 43 publications

Price and quality competition with quality positions

Price and quality competition with quality positions

Why Do Distilleries Produce Multiple Ages of Whisky?

Entry and Import Quota

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