First mover advantage by product proliferation in multiproduct duopoly

Abstract

This study aims to show that the product proliferation strategy in multi‐product duopoly is first‐mover advantage. We consider simultaneous and Stackelberg variety competitions. A firm producing more varieties charges a higher price, produces larger total quantities, and earns higher total revenue. When firms sequentially choose the masses of varieties and then simultaneously decide prices, the leader produces more varieties and enjoys first‐mover advantage. The masses of varieties can be regarded as strategic substitutes in the same way that quantities are. Finally, the market is likely to provide too few varieties relative to the social optimum.

Pricing leadership decisions of competing firms with consumer learning

“…For instance, Wu et al (2012) analyze pricing decisions in a noncooperative supply chain composed of two retailers and a common supplier from the pricing leadership structure perspective. Cheng and Tabuchi (2020) prove that the strategy of producing more varieties is a first‐mover advantage in a multiproduct duopoly. Gilpatric and Li (2021) find that taking the lead in pricing would harm the profit of a firm with a location advantage in that it is closer to most consumers.…”

Measuring the continuation effects of market order entry: A dynamic model

“…The findings suggest that the first entrant in a new geographical location is able to enjoy and maintain a market share advantage through distribution over late entrants. Cheng and Tabuchi (2020) find that first‐mover advantage can be maintained if the leader produces more variety (mass variety) and simultaneously decides prices.…”

“…Their early entry provides a competitive advantage over second movers (Booz, Allen and Hamilton, 1982; Crawford, 1977; Hopkins & Bailey, 1971), especially predominance over important resources, knowledge of customer perceptions, a technological edge, and patent protection (Abell & Hammond, 1979; Bond & Lean, 1977; Dalrymple & Parsons, 1980; Day, 1981; Porter, 1985; Vanhonacker, 1997). However, first movers incur higher costs and risks associated with market and product development (Cheng & Tabuchi, 2020; Baldwin & Childs, 1969; Guasch & Weiss, 1980; Mansfield, Schwartz, & Wagner, 1981; Zhang & Song, 2020).…”

“…However, first movers incur higher costs and risks associated with market and product development (Cheng & Tabuchi, 2020;Baldwin & Childs, 1969;Guasch & Weiss, 1980;Mansfield, Schwartz, & Wagner, 1981;Zhang & Song, 2020).…”

Corporate cannibalism in an oligopolistic market

“…In terms of the impact of firm selection timing on product proliferation, Cheng and Tabuchi (2020), focusing on both product proliferation and first-mover advantage, find the leader produces more varieties and enjoys first-mover advantage, and that the market is likely to provide too few varieties relative to the social optimum. Different from Cheng and Tabuchi (2020), in this paper we consider whether the incumbents who produce high-quality products choose product expansion when they encounter low-quality entrants. We find that incumbents do not choose product expansion when there are no entrants but when there are.…”