Entry and vertical differentiation (Q1851230)

The optimal entry strategies for different types of experience goods in a dynamic Cournot duopoly with vertically differentiated buyers is considered. The main goal of the article is to obtain a characterization of the features of the new product that lead to a qualitatively different entry strategy. It is shown that a new product that represents a certain improvement to an existing product is launched in the marked at prices above the static equilibrium level and sales quantities below the static level. As a model the unique Markov perfect equilibrium of the infinite horizon game under the strong long run average payoff criterion is used.