The impact of the potential entry of copycats: Entry conditions, consumer welfare, and social welfare

• Main Authors: GAO, Sarah Y., LIM, Wei Shi, TANG, Christopher
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2016
• Subjects: Copycat; Dynamic Pricing; Entry Strategy; Incumbent; Operations and Supply Chain Management; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5275; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6274/viewcontent/Gao_et_al_2016_ImpactPotentialEntryCopycats.pdf
• Institution: Singapore Management University

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).