Challenging the incumbent: entry in markets with captive consumers and taste heterogeneity

Christian Oertel and Armin Schmutzler

No 386, ECON - Working Papers from Department of Economics - University of Zurich

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 all 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 substi- tutability) 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; asymmetric competition; product innovation (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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https://www.zora.uzh.ch/id/eprint/203279/1/econwp386.pdf (application/pdf)

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:386

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