Keeping Your Enemies Closer: When Market Entry as an Alliance with Your Competitor Makes Sense

Cai, Chen; Raju, Jagmohan S.

doi:10.1287/mksc.2016.0988

Cited by 5 publications

(3 citation statements)

References 14 publications

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“…The firms have to decide whether and how (i.e., using alliance entry or independent entry) to enter a spillover‐producing market in the presence of multimarket competition that selling in this market results in a spillover effect to the primary market. Both firms would enter the spillover‐producing market using the alliance strategy only if they simultaneously chose to do so (Cai & Raju, 2016). Under the alliance entry strategy, the two firms merge into a horizontally integrated firm.…”

Section: Modelmentioning

confidence: 99%

“…Under the alliance entry strategy, the two firms merge into a horizontally integrated firm, which decides both the quality and price of the product to maximize their profit. This profit is divided between the firms in an exogenous PDP, denoted by μ , based on the bargaining power of the two parties (Cai & Raju, 2016). Under the independent entry strategy, the operating firm decides the product's price and quality that would maximize its profits in the spillover‐producing market.…”

Section: Modelmentioning

confidence: 99%

“…Zhang et al (2004) examine the effect of an air cargo alliance on competition in passenger markets. Our paper is closely related to Cai and Raju (2016), which considers the impact of market size and competition on the market entry strategy, and identifies the conditions under which an alliance mode of entry into a new market yields a higher profit than independent entry. In addition to the two factors, we consider the interplay between the operational efficiency and market spillover.…”

Section: Introductionmentioning

confidence: 99%

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Market entry strategy in the presence of market spillovers and efficiency differentiation

Zha

Lin-zi

et al. 2021

Naval Research Logistics

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Firms form various alliances or use brand extensions to enter new markets in order to improve their operational efficiency and create a positive spillover. However, they do not always know the implications of these strategies for market entry and multimarket competition because the sale of products in one market can have negative spillover effects on product sales in other markets. We present an analytical framework to examine whether and how (i.e., by choosing alliance entry or independent entry) competing firms should enter a market in a situation where market spillovers occur when a firm enters a spillover‐producing market to sell products that may increase or decrease the consumers' willingness to pay for products in the primary market. Our analysis shows that the operational efficiency (or quality differentiation ability) of firms in a spillover‐producing market varies, and hence, the impact of market spillovers differs for firms. We identify the key factors, such as bargaining power, brand value difference in the primary market, and the extent of efficiencies and spillovers, that determine the firms benefitting from the different entry strategies. Specifically, we show that firms would be more willing to choose an alliance strategy to enter a spillover‐producing market if the negative spillover is small and alliance efficiency is high. In contrast, if an alliance entry is not favored, the firms' relative operational efficiency is crucial for them to decide whether to enter the market independently under moderate spillover conditions. Finally, we show the implications of market entry strategies for managers.

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Section: Modelmentioning

confidence: 99%

Section: Modelmentioning

confidence: 99%