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

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  • Ralph Siebert

Abstract

This study focuses on firms' optimal entry strategies in new markets when products are differentiated in quality. We are interested in investigating how many products of different qualities firms should introduce into an empty market. One profitable strategy is that firms introduce multiple products to proliferate the product space such that entry by competitors is deterred. Our results show that firms' optimal strategy to enter new markets is described by introducing a single product only. Firms differentiate their products not only toward their rivals' products to soften price competition, but also toward their own goods in order to avoid cannibalizing their own (high quality) product demand.

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  • Ralph Siebert, 2015. "Entering New Markets in the Presence of Competition: Price Discrimination versus Cannibalization," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(2), pages 369-389, June.
    • Handle: RePEc:bla:jemstr:v:24:y:2015:i:2:p:369-389
    DOI: 10.1111/jems.12091
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    References listed on IDEAS

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    Cited by:

    1. Yu Wang & Minqiang Li & Haiyang Feng & Nan Feng, 2019. "Optimal sequential releasing strategy for software products in the presence of word-of-mouth and requirements uncertainty," Information Technology and Management, Springer, vol. 20(3), pages 153-174, September.
    2. Chin-Sheng Chen, 2017. "Price Discrimination in Input Markets and Quality Differentiation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 367-388, May.
    3. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2017. "Vertical differentiation and collusion: Pruning or proliferation?," Research in Economics, Elsevier, vol. 71(1), pages 129-139.
    4. Chen, Yi-Ting & Sun, Edward W. & Lin, Yi-Bing, 2020. "Merging anomalous data usage in wireless mobile telecommunications: Business analytics with a strategy-focused data-driven approach for sustainability," European Journal of Operational Research, Elsevier, vol. 281(3), pages 687-705.
    5. Xiaoyang He & Ralph Siebert, 2021. "Switching Beers? The Effects of Switching Costs on Prices and Profits in Competitive Markets," CESifo Working Paper Series 9065, CESifo.
    6. An-Hsiang Liu & Ralph Siebert, 2020. "The Competitive Effects of Declining Entry Costs over Time: Evidence from the Static Random Access Memory Market," CESifo Working Paper Series 8552, CESifo.
    7. Peter-J. Jost, 2023. "Price commitment and the strategic launch of a fighter brand," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 381-435, September.
    8. Liu, An-Hsiang & Siebert, Ralph B., 2022. "The competitive effects of declining entry costs over time: Evidence from the static random access memory market," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    9. Gabszewicz, Jean J. & Marini, Marco A. & Tarola, Ornella, 2016. "Vertical Differentiation and Collusion: Cannibalization or Proliferation?," ETA: Economic Theory and Applications 232221, Fondazione Eni Enrico Mattei (FEEM).
    10. Xingtang Wang & Leonard F. S. Wang, 2022. "Corporate cannibalism in an oligopolistic market," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 402-417, September.
    11. Shogo Kurokawa & Nobuo Matsubayashi, 2018. "Price and quality competition with quality positions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 71-81, March.
    12. Antoine Dubus & Christine Halmenschlager & Patrick Waelbroeck, 2023. "Fighting Free with Free: Freemium vs. Piracy," Working Papers hal-03991858, HAL.
    13. Megbel Aleidan, 2017. "Hotel Industry Regulations and Cross-Border Franchising: The Case of Saudi Arabia," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(9), pages 1-94, August.

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