New product introduction and capacity investment by incumbents: Effects of size on strategy

H. Dawid, M. Kopel, P.M. Kort

Research output: Contribution to journalArticleScientificpeer-review

7 Citations (Scopus)

Abstract

We analyze a duopoly where capacity-constrained firms offer an established product and have the option to offer an additional new and differentiated product. We show that the firm with the smaller capacity on the established market has a higher incentive to innovate and reaches a larger market share on the market for the new product. An increase in capacity of the larger firm can prevent its competitor from innovating, whereas an increase in capacity of the smaller firm cannot prevent innovation of its larger competitor. In equilibrium the firm with smaller capacity on the established market might outperform the larger firm with respect to total payoffs.
Original languageEnglish
Pages (from-to)133-142
JournalEuropean Journal of Operational Research
Volume230
Issue number1
DOIs
Publication statusPublished - Oct 2013

Keywords

  • game theory
  • innovation incentives
  • capacity choice
  • multi-product oligopoly
  • subgame-perfect-equilibrium

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