Entry and Innovation in Vertically Differentiated Markets

Dirk Bergemann and Juuso Välimäki

No 1260, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: This paper analyzes the optimal entry into experience goods markets with vertically differentiated buyers. We consider the case where the value of the new product is imperfectly know, but common to all buyers (common values) as well as the case where the quality is different across buyers (private values). We distinguish between enw products that are improvements to existing products and new products that are sbustitutes. Different types of products have qualitatively distinct diffusion paths. Improvements are introduced slowly relative to the full information case, while the substitutes are introduced more aggressively. The slow entry strategy is associated with increasing supply and decreasing prices over time. The reverse patterns holds for an aggressive entry strategy. The incentives to innovate display a similar dinstinction. A firm with a currently inferior product opts for a large but risky innovation, whereas a currently superior product chooses a smaller but certain innovation.

Keywords: Experience Goods; Vertical Differentiation; Entry; Innovation. (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 1999-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.kellogg.northwestern.edu/research/math/papers/1260.pdf main text (application/pdf)

Related works:
Working Paper: Entry and Innovation in Vertically Differentiated Markets (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nwu:cmsems:1260

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014. Contact information at EDIRC.
Bibliographic data for series maintained by Fran Walker ( this e-mail address is bad, please contact ).