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Title: First-mover disadvantage with consumers' idiosyncratic preferences along unobservable characteristics
Authors: Rhee, Byong-Duk
De Palma, André
Thisse, Jacques-François
Keywords: First-mover disadvantage
Consumer heterogeneity
Unobservable attributes
Sequential entry
Issue Date: Aug-1998
Series/Report no.: Marketing Working Paper Series ; MKTG 98.117
Abstract: To pioneer or not? This is one of the most fundamental marketing decisions. The theoretical literature in marketing and economics shows that pioneers have first-mover advantages by preempting scarce resources and market positions. Conversely, pioneers have disvantages when followers obtain more information about consumer demand by adopting a "wait-and-see" strategy. This paper, however, demonstrates first-mover disadvantage even in the absence of follower's informational advantage. We assume that consumers differ in their tastes not only along attributes that firms manage strategically, but also along attributes that the firms cannot manage due to their unobservability. We examine the effect of consumer heterogeneity on first-mover advantage in a duopoly model of sequential entry. This paper shows that the first mover attains lower sales and profits when consumers exhibit sufficiently large idiosyncratic preferences due to their differing tastes along unobservable attributes. On the other hand, under conditions where consumer tastes vary mainly along the strategic attributes, our findings are consistent with past research that argues for first-mover advantage.
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