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Challenging the incumbent: Entry in markets with captive consumers and taste heterogeneity
Author(s) -
Oertel Christian,
Schmutzler Armin
Publication year - 2022
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12490
Subject(s) - taste , product (mathematics) , business , product differentiation , market share , microeconomics , economics , marketing , industrial organization , biology , food science , cournot competition , geometry , mathematics
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 between the share of captive consumers and the degree of taste heterogeneity leads to nonmonotone effects of both parameters on entry: The captive share can have an inverse‐U relation with entry profits, and higher taste heterogeneity (i.e., less product substitutability) can impede entry in the presence of captive consumers.