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Sequential Entry with Brand Loyalty Caused by Consumer Learning-by-Using

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Author Info

  • Gabszewicz, J.J.
  • Pepall, L.
  • Thisse, J.F.

Abstract

The authors examine first mover advantages in a new product market with sequential entry. Effort is necessary to learn how to use new products and consumers are assumed to differ in their ability to expend such effort. The authors consider the intertemporal pricing strategy of the first entrant who anticipates the late entry of a rival firm. The first entrant's optimal strategy is to set a low introductory price. This builds up a customer base, which remains loyal despite the later entry of a lower-priced rival, and weakens price competition between the two firms. Thus, brand loyalty makes entry into the market easier. Copyright 1992 by Blackwell Publishing Ltd.

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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Papiers d'Economie Mathématique et Applications with number 92-17.

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Length: 29 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:fth:pariem:92-17

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Postal: France; Universite de Paris I - Pantheon- Sorbonne, 12 Place de Pantheon-75005 Paris, France
Phone: + 33 44 07 81 00
Fax: + 33 1 44 07 83 01
Web page: http://cermsem.univ-paris1.fr/
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Keywords: production ; pricing ; economic models;

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Cited by:
  1. Julie Hunsaker, 2001. "The impact of riverboat casinos on the demand for gambling at casino resorts: a theoretical and empirical investigation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(1-3), pages 97-111.
  2. Lee, Cheryl Hill & Schluter, Gerald E., 2002. "Why Do Food Manufacturers Introduce New Products?," Journal of Food Distribution Research, Food Distribution Research Society, vol. 33(01), March.
  3. Jean J., GABSWEWICZ & Filomena, GARCIA, 2005. "Quality improvement and network externalities," Discussion Papers (ECON - Département des Sciences Economiques) 2005064, Université catholique de Louvain, Département des Sciences Economiques.
  4. Osiris Jorge Parcero & Emiliano Villanueva, 2011. "World Wine Exports: What Determined the Success of the ‘New World’ Wine Producers?," CRIEFF Discussion Papers 1103, Centre for Research into Industry, Enterprise, Finance and the Firm.
  5. Ornella Tarola & Sandro Trento, 2008. "Innovazione commerciale ed effetti di rete: quali implicazioni di politica industriale?," DISA Working Papers 0802, Department of Computer and Management Sciences, University of Trento, Italy, revised 04 Jul 2008.
  6. Jacques-François Thisse & Jean J. Gabszewicz, 2000. "Microeconomic theories of imperfect competition," Cahiers d'Économie Politique, Programme National Persée, vol. 37(1), pages 47-99.
  7. Robert Schmidt, 2013. "Price competition and innovation in markets with brand loyalty," Journal of Economics, Springer, vol. 109(2), pages 147-173, June.

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