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

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  • Gabszewicz, Jean
  • Pepall, Lynne
  • Thisse, Jacques-Francois

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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  • Gabszewicz, Jean & Pepall, Lynne & Thisse, Jacques-Francois, 1992. "Sequential Entry with Brand Loyalty Caused by Consumer Learning-by-Using," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 397-416, December.
    • Handle: RePEc:bla:jindec:v:40:y:1992:i:4:p:397-416
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    Cited by:

    1. Boone, Jan & Shapiro, Joel, 2006. "Selling to Consumers with Endogenous Types," CEPR Discussion Papers 5862, C.E.P.R. Discussion Papers.
    2. Vasudha Wattal, 2022. "Pricing of new pharmaceuticals and price regulation in India," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2022-02, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    3. Jean J. Gabszewicz & Jacques-François Thisse, 2000. "Microeconomic theories of imperfect competition," Cahiers d'Économie Politique, Programme National Persée, vol. 37(1), pages 47-99.
    4. GABSZEWICZ, Jean J. & GARCIA, Filomena, 2005. "Quality improvement and network externalities," LIDAM Discussion Papers CORE 2005096, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. 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(1), pages 1-10, March.
    6. Lam, W., 2015. "Switching Costs in Two-sided Markets," LIDAM Discussion Papers CORE 2015024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Jean J. Gabszewicz & Filomena Garcia, 2007. "Intrinsic quality improvements and network externalities," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 261-278, December.
    8. 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.
    9. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    10. Tarek Selim, 2006. "On Equilibrium Number of Firms," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(4), pages 505-506, December.
    11. 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.
    12. Parcero Osiris J. & Villanueva Emiliano, 2012. "The success of new exporting countries in a traditional Agri-business industry, 1961-2005," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 10(1), pages 1-25, November.
    13. William Boulding & Markus Christen, 2008. "Disentangling Pioneering Cost Advantages and Disadvantages," Marketing Science, INFORMS, vol. 27(4), pages 699-716, 07-08.
    14. Didem Demirhan & Varghese S. Jacob & Srinivasan Raghunathan, 2007. "Strategic IT Investments: The Impact of Switching Cost and Declining IT Cost," Management Science, INFORMS, vol. 53(2), pages 208-226, February.
    15. Lam, Wing Man Wynne, 2014. "Switching Costs in Two-sided Markets," TSE Working Papers 14-517, Toulouse School of Economics (TSE).
    16. Robert Schmidt, 2013. "Price competition and innovation in markets with brand loyalty," Journal of Economics, Springer, vol. 109(2), pages 147-173, June.
    17. Wing Man Wynne Lam, 2017. "Switching Costs in Two-Sided Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 136-182, March.
    18. Thomas Gehrig & Rune Stenbacka, 2004. "Differentiation‐Induced Switching Costs and Poaching," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 635-655, December.
    19. Sears, Joshua B., 2019. "A real options model of market entry: Endogenous uncertainty and exogenous uncertainty," Journal of International Management, Elsevier, vol. 25(3), pages 1-1.
    20. Osiris Jorge Parcero & Emiliano Villanueva, 2024. "World Wine Exports: What Determines the Success of New World Wine Producers?," Papers 2401.04696, arXiv.org.
    21. J.-P. Niinimäki, 2023. "Experience Goods, Umbrella Branding, and Reputation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 33-44, February.
    22. Boone, J. & Shapiro, J., 2006. "Selling to Consumers with Endogenous Types," Other publications TiSEM 204f348b-5c07-415d-95a1-3, Tilburg University, School of Economics and Management.

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