Incumbent Incentives in Response to Entry

Richard Saouma, Orie Shelef (), Robert Wuebker () and Anita McGahan ()
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Orie Shelef: David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112
Robert Wuebker: David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112
Anita McGahan: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada

Strategy Science, 2024, vol. 9, issue 2, 152-162

Abstract: How should an incumbent respond to the arrival of an entrant? A long-standing literature documents a host of potential responses, but little work explores when each strategy will be more or less effective. This paper develops a model of incumbent-entrant competition between vertically and horizontally differentiated firms and applies that model to understand the incentives that shape an incumbent’s response to entry and ultimately, long-run profits. Analysis reveals the conditions under which an incumbent facing the full strategy space of possible exogenous entrants has incentive to attack an entrant and conditions where the incumbent has incentive to retreat. By viewing the incumbent and entrant in terms of their level of vertical and horizontal differentiation, this paper offers a unified view of prior work that generates insights about incumbent responses to entry that have been underappreciated. Further, this unified view offers insight on the effectiveness of a particular incumbent response.

Keywords: strategic positioning; entry strategies; spatial competition (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:9:y:2024:i:2:p:152-162

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