Product innovation and imitation in a duopoly with differentiation by attributes
This paper considers a probabilistic duopoly in which products are described by their specific attributes, this form of differentiation embodying the horizontal and vertical dimensions. Consumers make discrete choices and follow a random decision rule based on these attributes. A three-stage game is studied in which firms develop new attributes for their products (innovation), then may imitate the attributes of the competing product and finally compete in price. At the equilibrium, the firm selling the less appreciated product is generally incited to imitate its rival. Confronted to a threat of imitation, the benchmark firm sometimes decreases strategically its attribute index in order to diminish its unit cost of innovation and the differentiation on the market, deterring the imitation in this way. This strategy is efficient when imitation costs are sufficiently concave. In the opposite case, it is preferable for the benchmark firm to accept the imitation. Thus, according to the shape of imitation costs, equilibria with "deterrence" or with "accommodation" "accommodation" occur, completing the current typology of strategic responses to a threat of imitation.
|Date of creation:||Feb 2008|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00586867|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary-Bobo, Robert J., 1989.
"Cournot-Walras and locally consistent equilibria,"
Journal of Economic Theory,
Elsevier, vol. 49(1), pages 10-32, October.
- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE,Â Jacques-FranÃ§ois, .
"On Hotelling's "Stability in competition","
CORE Discussion Papers RP
385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
When requesting a correction, please mention this item's handle: RePEc:hal:psewpa:halshs-00586867. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.