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.
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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number
2008-02.
Find related papers by JEL classification: D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
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