Competing with Copycats When Customers Are Strategic

Hubert Pun () and Gregory D. DeYong ()
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Hubert Pun: Ivey Business School, Western University, London, Ontario N6A 3K7, Canada
Gregory D. DeYong: Southern Illinois University, Carbondale, Illinois 62901

Manufacturing & Service Operations Management, 2017, vol. 19, issue 3, 403-418

Abstract: In this paper, we use a two-period game theoretical model to examine the decisions of a manufacturer and a copycat firm who are competing for strategic customers. The manufacturer decides on the amount of its market expansion advertising investment in the first period and on its pricing strategy in both periods. Advertising increases the “size of the pie,” but eventually the manufacturer may end up inadvertently sharing the benefits with the copycat. After the first period, the copycat makes a market-entry decision, and, if it opts to enter, it also decides on a pricing strategy. The customers are strategic, and they decide whether or not to buy, when to buy, and which product to buy. We find that, interestingly, lower quality levels of the manufacturer’s product may increase the manufacturer’s prices and profit. Moreover, the manufacturer may be worse off when customers are more likely to purchase its product immediately rather than wait for a price reduction or for the copycat’s product. Finally, the copycat may be worse off when customers withhold their purchases in the first period in anticipation of the possibility of copycat product becoming available in a later period.

Keywords: competition; copycat; entry deterrence; game theory; strategic customers (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:19:y:2017:i:3:p:403-418

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