Article ID: | iaor20173705 |
Volume: | 48 |
Issue: | 4 |
Start Page Number: | 594 |
End Page Number: | 624 |
Publication Date: | Aug 2017 |
Journal: | Decision Sciences |
Authors: | Lim Wei Shi, Tang Christopher, Gao Sarah Y |
Keywords: | management, investment, decision, simulation, game theory |
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).