Corporate Leverage and Product Differentiation Strategy

Stefan Arping and Lóránth, Gyöngyi

No 3451, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We explore the joint determination of product differentiation strategy and corporate leverage in a setting where (i) product differentiation is valued by customers; (ii) debt is necessary to discipline managers; and (iii) liquidation is costly for customers, in particular, when products are highly differentiated from competitors' products. We show that when managerial incentive problems call for high leverage, firms position their products closer to competitors to reduce deadweight costs customers incur in liquidation. We discuss our findings in light of case study evidence.

Keywords: Leverage; Product differentiation; Liquidation costs; Customer lock-in strategies; Innovation (search for similar items in EconPapers)
JEL-codes: G3 L1 L2 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-cfn and nep-com
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Citations: View citations in EconPapers (1)

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Journal Article: Corporate Leverage and Product Differentiation Strategy (2006)
Working Paper: Corporate Leverage and Product Differentiation Strategy (2002)
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