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Challenging the incumbent: Entry in markets with captive consumers and taste heterogeneity

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  • Christian Oertel
  • Armin Schmutzler

Abstract

We analyze entry of a firm with a new and differentiated product into a market with two properties: An existing incumbent has a captive consumer base, and all consumers have heterogeneous tastes. The interaction between the share of captive consumers and the degree of taste heterogeneity leads to nonmonotone effects of both parameters on entry: The captive share can have an inverse‐U relation with entry profits, and higher taste heterogeneity (i.e., less product substitutability) can impede entry in the presence of captive consumers.

Suggested Citation

  • Christian Oertel & Armin Schmutzler, 2022. "Challenging the incumbent: Entry in markets with captive consumers and taste heterogeneity," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(4), pages 961-979, November.
    • Handle: RePEc:bla:jemstr:v:31:y:2022:i:4:p:961-979
    DOI: 10.1111/jems.12490
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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