Close But Not Too Close? Optimal Copycat Strategies in the Light of Negative Publicity by the Original Product

Grosser Joachim, Sonnabend Hendrik () and Westbrock Bastian ()
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Grosser Joachim: Department of Economics and Business Administration, University of Hagen, Hagen, Germany
Sonnabend Hendrik: Department of Economics and Business Administration, University of Hagen, Hagen, Germany
Westbrock Bastian: Department of Economics and Social Sciences, Hamburg University, Hamburg, Germany

The B.E. Journal of Economic Analysis & Policy, 2024, vol. 24, issue 2, 649-658

Abstract: This paper contributes to the understanding of how brand scandals related to a brand leader’s product affect the follower firm’s choice between copycatting and independent product development. In a model of vertical product differentiation, we show that it is optimal for the copycatter to follow a ‘safe distance’ strategy which guarantees a certain degree of protection against the negative spillovers associated with a brand scandal to the leader. Nevertheless, when the follower firm can choose between copycatting and decoupling, it chooses a higher quality for its copycat product because of the lower development costs. The decision for or against copycatting thus depends on a trade-off between development costs and the possibility of negative spillovers. Finally, we show that the threat of a scandal can lead to an additional indirect welfare cost because it diverts the follower’s choice away from a welfare-maximizing copycat strategy.

Keywords: vertical product differentiation; copycatting; brand scandals (search for similar items in EconPapers)
JEL-codes: L11 L13 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/bejeap-2022-0456

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