Department of Economics and Business Economics

Brand popularity, endogenous leadership, and product introduction in industries with word of mouth communication

Research output: Working paperResearch

  • Christian Dahl Winther, Denmark
  • School of Economics and Management
This paper considers the impact of popularity on duopolists'
entry strategies into an emerging industry, where each consumer holds a
preference for one of two competing brands. Brand popularity is influenced
by word of mouth communication, as early adopters recommend the
brand they have bought to later buyers. Early introduction is, however, a
costly strategy. The timing of product introduction is therefore of strategic
importance to firms. I investigate the equilibria of the game when firms
choose their time to market strategies sequentially, and observe how they
relate to the popularity of the Stackelberg leader's brand. This analysis
reveals firms' individual incentives for leader and follower roles, and the
market structure that would result in this noncooperative game. As von
Stackelberg showed a leader's commitment to a strategy can preempt the
follower. The present model shows that this situation, where both firms
prefer the leader role, most likely occurs when brands hold equal levels of
popularity. On the other hand it is interesting to observe that in certain
markets, in particular where popularity is highly asymmetric, it is optimal
for the dominant firm to become follower, and for the inferior firm to
lead, because this facilitates soft competition. Still, the market structure
may be insensitive to the order of moves. This warrants investigation of
the connection between leadership and brand popularity, and the effect on
market structure.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Univeritet
Number of pages23
Publication statusPublished - 2008

    Research areas

  • Endogenous leadership, product differentiation, product introduction, technological change, word of mouth communication

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ID: 12339542