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A Dynamic Model of Competitive Entry Response

Author

Listed:
  • Matthew Selove

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract
I develop a dynamic investment game with a “memoryless” research and development process in which an incumbent and an entrant can invest in a new technology, and the entrant can also invest in the old technology. I show that an increase in the probability of successfully implementing a technology can cause the incumbent to reduce its investment. Under certain conditions, if the success probability is high, the incumbent allows the entrant to win the new technology so that firms reach an equilibrium in which they use different technologies, and threats of retaliation prevent attacks; but if the success probability is low, such an equilibrium cannot be sustained, and both firms eventually implement both technologies.

Suggested Citation

  • Matthew Selove, 2014. "A Dynamic Model of Competitive Entry Response," Marketing Science, INFORMS, vol. 33(3), pages 353-363, May.
    • Handle: RePEc:inm:ormksc:v:33:y:2014:i:3:p:353-363
    DOI: 10.1287/mksc.2013.0827
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    References listed on IDEAS

    as
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    Cited by:

    1. Wu, Cheng-Han & Lai, Jing-Yi, 2019. "Dynamic pricing and competitive time-to-market strategy of new product launch under a multistage duopoly," European Journal of Operational Research, Elsevier, vol. 277(1), pages 138-152.

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