Proliferation under threat of entry: pre-emptive investment or “hopeful monsters”?

Ilhem Baghdadli () and Dominique Henriet
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Ilhem Baghdadli: CEDERS, Aix en Provence,and GREQAM, Université de la Méditerranée, Marseille

No 1998046, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Proliferation is a strategic behavior which follows various logics: the wish for pre-emption is one of these but does not stand alone. Far from it. However, the literature associates almost systematically the question of proliferation to that of pre-emption, in such a way that the interest in the incumbent’s offer of proliferation can only be measured in terms of its pre-emptive power. The decision to proliferate is a choice which must be made by the incumbent even before he is aware of the particular characteristics of his future challengers. At the moment of choosing his position in the product space, the incumbent does not know on which market he could be opposed, and he is equally unaware of the cost at which his hypothetical rival is capable of undertaking production. Therefore he runs the risk of choosing a position which he may be unable to sustain once the market is mature, particularly if he was to stand up to more technologically advanced opponents or those with an organization superior to his own. In this setting we show that brand proliferation looks like a development of “hopeful monsters” that can limit the risk run by the firm of being excluded from the mature markets

Date: 1998-08-01
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