Research seminar: Armin Schmutzler, University of Zurich is the guest speaker
Armin Schmutzler, will be speaking about Asymmetric Competition, Brand Loyalty and Product Innovation (Christian Oertel and Armin Schmutzler)
The paper considers incentives for innovative entrants to offer imperfect substitutes
for an incumbent monopolist's product. We assume that some of the consumers are
naive (loyal to the incumbent). We identify non-monotone effects of preference heterogeneity and the share of naive consumers on entry. These results reflect countervailing pricing effects arising from the incumbent's incentive to cater to naive and sophisticated consumers at the same time. On a related note, we find that the incumbent may set lower prices than an entrant under reasonable conditions. For the analysis, we introduce a new model of product differentiation that captures asymmetries in the intensity of price competition between products.