The Impact of the Potential Entry of Copycats: Entry Conditions,Consumer Welfare,and Social Welfare |
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Abstract: | 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). |
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Keywords: | Copycat Dynamic Pricing Entry Strategy Incumbent |
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