Department of Economics and Business Economics

Popularity and Debut

Research output: Working paperResearch

  • Christian Dahl Winther, Denmark
  • School of Economics and Management
This paper focuses on two firms' optimal entry strategies in an emerging market characterized
by word-of-mouth effects. Consumers can be of two types depending on which firm's brand
they prefer. Firms are asymmetric in their popularity as given by the probability of meeting
a fan of its brand. Word-of-mouth communication influences popularity in the two periods of
competition by increasing the likelihood of the late consumer having an affinity towards the
brand adopted at the first stage. In this environment firms strategically choose their timing
of product introduction knowing that fast introduction is costly. I study the subgame perfect
equilibria of the game to observe how they connect to firms' popularities, strength of word-ofmouth
network effects, and the level of product differentiation. The model shows under what
conditions asymmetries in the duopoly should be expected to increase or decrease over time.
In addition, the paper illustrates that the more popular firm in many cases prefers to mimic its
smaller rival, which, on the other hand, would like for the firms to play opposite strategies. The
model is extended to study how firms may want to lower the degree of product differentiation
to reduce first-mover advantages, alleviating incentives to enter a costly product development
race.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages22
Publication statusPublished - 2008

    Research areas

  • Product introduction, Technological change, Word-of-mouth communication, Product differentiation

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