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First mover or higher quality? Optimal product strategy in markets with positive feedbacks

Pj Lamberson () and Scott E. Page

Journal of Economics & Management Strategy, 2018, vol. 27, issue 1, 40-52

Abstract: Conventional wisdom holds that in markets with positive feedbacks being first to market can matter more than product quality. In this paper, we test that intuition within a generalized Pólya urn model. We find that if we assume constant feedbacks, in the long run, higher quality products dominate the market regardless of initial market shares, contradicting the common wisdom. However, when we allow for variable feedbacks, initial advantages persist almost indefinitely. Thus, the choice of whether to rush to market or focus on quality depends on market characteristics such as whether the positive feedbacks result from more consistent returns to scale or from more variable social influences.

Date: 2018
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Handle: RePEc:bla:jemstr:v:27:y:2018:i:1:p:40-52