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The Impact of the Potential Entry of Copycats: Entry Conditions, Consumer Welfare, and Social Welfare
Author(s) -
Gao Sarah Y.,
Lim Wei Shi,
Tang Christopher
Publication year - 2017
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/deci.12235
Subject(s) - copycat , welfare , consumer welfare , social welfare , imitation , product (mathematics) , business , economics , profit (economics) , microeconomics , industrial organization , market economy , computer science , geometry , law , psychology , social psychology , mathematics , artificial intelligence , political science
This article examines the implications of the potential entry of a copycat who produces and sells a copycat (i.e., imitation) product that competes with the incumbent product. By analyzing a two‐period dynamic noncooperative game between these two firms, we identify conditions under which the copycat can gain successful market entry. More importantly, we find that the potential entry of a copycat creates (implicit) pressure for the incumbent to lower its selling price; hence, it improves consumer welfare. Finally, we identify conditions under which the potential entry of a copycat can increase social welfare (i.e., consumer welfare and the profit of both firms).