Abstract
Taiwan's daily newspaper industry is characterized by multiple products and heterogeneous competition. This article develops a game-theoretic model to analyze the strategic and competitive reaction of the incumbent in the newspaper market to a recent tabloid-like entertainment newspaper entrant and its impact on the industrial structure through a modification of Judd's multi-product competition model (1985), considering the property of heterogeneous competition in the Taiwan newspaper market. The leading incumbent operated newspapers in the general news and entertainment-oriented news segments of the market and our equilibrium analysis shows that closing its entertainment-oriented paper was the optimal response to the competitive entry in the short run. However, when the possibility that the entrant might invest in disruptive innovations in other product segments after entry is considered, the model shows that the incumbent's withdrawal from the entertainment market could induce more severe competition in the general news market and thus hurt its long-term profits. Managerial insights and implications of the analysis are discussed.
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