The Impact of the Potential Entry of Copycats: Entry Conditions, Consumer Welfare, and Social Welfare. (30th June 2016)

• Record Type: Journal Article
• Authors: Gao, Sarah Y.; Lim, Wei Shi; Tang, Christopher
• Is Part Of: Decision sciences. Volume 48:Number 4(2017:Aug.)
• Page Start: 594
• Page End: 624
• Publication Date: 2016-06-30
• Subjects: Copycat -- Dynamic Pricing -- Entry Strategy -- Incumbent; Decision making -- Periodicals; Policy sciences -- Periodicals; 658.40305
• DOI: 10.1111/deci.12235
• Languages: English
• ISSNs: 0011-7315

Abstract

ABSTRACT: This article examines the implications of the potential entry of a copycat who produces and sells a copycat (i.e., imitation) product that competes with the incumbent product. By analyzing a two‐period dynamic noncooperative game between these two firms, we identify conditions under which the copycat can gain successful market entry. More importantly, we find that the potential entry of a copycat creates (implicit) pressure for the incumbent to lower its selling price; hence, it improves consumer welfare. Finally, we identify conditions under which the potential entry of a copycat can increase social welfare (i.e., consumer welfare and the profit of both firms).