First mover advantage by product proliferation in multiproduct duopoly

• Date: 01 March 2020
• Published date: 01 March 2020
• Author: Takatoshi Tabuchi,Yi‐Ling Cheng
• DOI: http://doi.org/10.1111/ijet.12242

Int J Econ Theory. 2020;16:106–118.wileyonlinelibrary.com/journal/ijet106

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© 2019 IAET

Received: 19 January 2019

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Accepted: 17 June 2019

DOI: 10.1111/ijet.12242

ORIGINAL ARTICLE

First mover advantage by product proliferation

in multiproduct duopoly

Yi‐Ling Cheng

1

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Takatoshi Tabuchi

2

1

National Sun Yat‐sen University,

Kaohsiung, Taiwan

2

Faculty of Economics, University of

Tokyo, Tokyo, Japan

Correspondence

Takatoshi Tabuchi, Faculty of

Economics, University of Tokyo, Hongo‐

7‐3‐1, Bunkyo‐ku, Tokyo 113‐0033, Japan.

Email: ttabuchi@e.u-tokyo.ac.jp

Abstract

This study aims to show that the product proliferation

strategy in multi‐product duopoly is first‐mover advan-

tage. We consider simultaneous and Stackelberg variety

competitions. A firm producing more varieties charges a

higher price, produces larger total quantities, and earns

higher total revenue. When firms sequentially choose

the masses of varieties and then simultaneously decide

prices, the leader produces more varieties and enjoys

first‐mover advantage. The masses of varieties can be

regarded as strategic substitutes in the same way that

quantities are. Finally, the market is likely to provide too

few varieties relative to the social optimum.

KEYWORDS

product proliferation, first‐mover advantage, Stackelberg variety

competition, multi‐product duopoly

JEL CLASSIFICATION

D43; L25

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INTRODUCTION

The literature on the sequential entry of multi‐product firms often focuses on market pre‐

emption by an incumbent applying product proliferation to deter the entry of other firms and

maintain its monopoly power. For example, Schmalensee (1978) and Eaton and Lipsey (1979)

indicate that an incumbent may deter entry by producing new goods and crowding the product

spectrum to the extent that no niche remains for potential entrants.

Leading producers such as Quaker Oats and Campbell’s proliferate brands, but they often

fail to deter the entry of new firms. In reality, pioneers and followers often coexist while

pioneers can be more successful. Campbell’s coexists with followers Health Valley and Pacific

Foods, each selling more than 10 different kinds of soups. Other examples include Gillette and