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Sequential entry with brand loyalty caused by consumer learning-by-using


  • PEPALL, Lynne
  • THISSE, Jacques-François


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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Suggested Citation

  • GABSZEWICZ, Jean J. & PEPALL, Lynne & THISSE, Jacques-François, 1992. "Sequential entry with brand loyalty caused by consumer learning-by-using," CORE Discussion Papers RP 1018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:1018 Note: In : The Journal of Industrial Economies, 40(4), 397-416, 1992

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    References listed on IDEAS

    1. Tulkens, Henry, 1978. "Dynamic processes for public goods : An institution-oriented survey," Journal of Public Economics, Elsevier, vol. 9(2), pages 163-201, April.
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    4. Chander, P., 1987. "Cost-sharing local games in dynamic processes for public goods," CORE Discussion Papers 1987027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Kaitala, Veijo & Pohjola, Matti, 1992. "Acid Rain and International Environmental Aid: A Case Study of Transboundary Air Pollution Between Finland, Russia and Estonia," Discussion Papers 400, The Research Institute of the Finnish Economy.
    6. Mueller, Dennis C, 1976. "Public Choice: A Survey," Journal of Economic Literature, American Economic Association, vol. 14(2), pages 395-433, June.
    7. Chander, Parkash & Parikh, Ashok, 1990. " Theory and Practice of Decentralized Planning Procedures," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 19-58.
    8. Tulkens, Henry & Schoumaker, Francoise, 1975. "Stability analysis of an effluent charge and the `polluters pay' principle," Journal of Public Economics, Elsevier, vol. 4(3), pages 245-269, August.
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    Cited by:

    1. Lam, W., 2015. "Switching Costs in Two-sided Markets," CORE Discussion Papers 2015024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. 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.
    3. 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.
    4. 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.
    5. William Boulding & Markus Christen, 2008. "Disentangling Pioneering Cost Advantages and Disadvantages," Marketing Science, INFORMS, vol. 27(4), pages 699-716, 07-08.
    6. 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.
    7. Boone, Jan & Shapiro, Joel, 2006. "Selling to Consumers with Endogenous Types," CEPR Discussion Papers 5862, C.E.P.R. Discussion Papers.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    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. Lam, Wing Man Wynne, 2014. "Switching Costs in Two-sided Markets," TSE Working Papers 14-517, Toulouse School of Economics (TSE).
    14. 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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