Sequential Product Positioning and Entry Timing under Differential Costs in a Continuous-Time Model

Abstract

We investigate the product positioning decisions of two firms with differential marginal production costs, which enter a market sequentially under a continuous-time duopoly competition. We show that, if the follower firm optimally chooses its entry timing, the leader firm strategically positions itself at the most attractive locations or away from them, depending on the growth rate of the market, discount rate, and degree of differential costs. We also introduce uncertainty about entry and marginal costs to examine their effects on positioning.