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Close But Not Too Close? Optimal Copycat Strategies in the Light of Negative Publicity by the Original Product

Author

Listed:
  • Grosser Joachim
  • Sonnabend Hendrik

    (Department of Economics and Business Administration, University of Hagen, Hagen, Germany)

  • Westbrock Bastian

    (Department of Economics and Social Sciences, Hamburg University, Hamburg, Germany)

Abstract

This paper contributes to the understanding of how brand scandals related to a brand leader’s product affect the follower firm’s choice between copycatting and independent product development. In a model of vertical product differentiation, we show that it is optimal for the copycatter to follow a ‘safe distance’ strategy which guarantees a certain degree of protection against the negative spillovers associated with a brand scandal to the leader. Nevertheless, when the follower firm can choose between copycatting and decoupling, it chooses a higher quality for its copycat product because of the lower development costs. The decision for or against copycatting thus depends on a trade-off between development costs and the possibility of negative spillovers. Finally, we show that the threat of a scandal can lead to an additional indirect welfare cost because it diverts the follower’s choice away from a welfare-maximizing copycat strategy.

Suggested Citation

  • Grosser Joachim & Sonnabend Hendrik & Westbrock Bastian, 2024. "Close But Not Too Close? Optimal Copycat Strategies in the Light of Negative Publicity by the Original Product," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 24(2), pages 649-658, April.
    • Handle: RePEc:bpj:bejeap:v:24:y:2024:i:2:p:649-658:n:3
    DOI: 10.1515/bejeap-2022-0456
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    More about this item

    Keywords

    vertical product differentiation; copycatting; brand scandals;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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