Challenging the Incumbent: Entry in markets with captive consumers and taste heterogeneity

Armin Schmutzler and Christian Oertel

No 16165, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze entry of a firm with a new and differentiated product into a market with two properties: An existing incumbent has a captive consumer base, and consumers have heterogeneous tastes. The interaction of the share of captive consumers with the degree of taste heterogeneity leads to non-monotone effects of both parameters on entry. In particular, a higher captive share can support entry when heterogeneity is low but not when it is high, and higher taste heterogeneity (i.e., less product substitutability) can impede entry in the presence of captive consumers. Considering these effects together leads to new insights on entry, horizontal product innovation, and price discrimination.

Keywords: Entry; Captive consumers; Price discrimination; Product innovation (search for similar items in EconPapers)
Date: 2021-05
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Journal Article: Challenging the incumbent: Entry in markets with captive consumers and taste heterogeneity (2022)
Working Paper: Challenging the incumbent: entry in markets with captive consumers and taste heterogeneity (2021)
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