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Competitive Strategies for Late Entry into a Market with a Dominant Brand

Author(s): Gregory S. Carpenter and Kent NakamotoSource: Management Science, Vol. 36, No. 10, Focussed Issue on the State of the Art in Theoryand Method in Strategy Research (Oct., 1990), pp. 1268-1278Published by: INFORMSStable URL: http://www.jstor.org/stable/2632665.

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MANAGEMENT SCIENCEVol. 36, No. 10, October 1990

Prinlied n U.S.A.

COMPETITIVE STRATEGIES FOR LATE ENTRY INTO AMARKET WITH A DOMINANT BRAND*GREGORY S. CARPENTER AND KENT NAKAMOTOJ. L. Kellogg GradutateSchiool ofManagement, NorthwesternUniversitv,Evanston, Illinois 60208Karl Eller GraditateSchool of Management, UniversitvoJfArizona,Tucson, Ari-ona 85721

This paperconsiders optimal positioning, advertising,and pricing strategiesfor a firm contem-plating entry in a marketdominated by an entrenchedcompetitor. Drawingon behavioralresearchon consumer preference formation, we develop an individual-level model that reflects differingconsumer responses to similar products offered by the dominant brand and later entrants-aneffect we term asymmetric preferences.From the resulting aggregatemarket response model, wederive several competitive implications, notably ( I) that preference asymmetry can make adifferentiated late entry strategy optimal even if preferences would appear to dictate otherwise,and (2) that me-too strategiesare not equilibriumlate entry strategies.Moregenerally,our analysissuggests that preference asymmetry can contribute to the persistent competitive advantage ofdominant brands.(COMPETITION,LATE ENTRY STRATEGY, PREFERENCE ASYMMETRY, DOMINANTBRANDS)

1. IntroductionWrigley's chewing gum, Kleenex tissues, and other highly successful brands are for-midablecompetitors.Becausethey are well known, widely distributed,and well positioned,

these brands dominate their markets, retaining the largest share of their markets aftermany competitive entries, in some cases for decades (Urban, Carter,Gaskin, and Mucha1986). While late entry can be successful (e.g., Pepsi in the cola market), devising suc-cessful strategiesfor introducinga new product into a market dominated by such a brandpresents a difficult strategic problem.Analyses of new product introduction have drawn on psychometric methods such asmultidimensional scaling to form the foundation for empirical studies (e.g., Urban andHauser 1980;Wind 1982), while theoretical analyses have drawn heavily on game theory(e.g., Lane 1980), decision making under uncertainty (Schmalensee 1982), and theeconomics of industrial organization (Porter 1985).Despite this apparent diversity, all these approaches assume that product evaluationdepends only on perceived or actual characteristics and price, not on the brand namewith which a product is associated and the competitive context within which buyers mustchoose. For example, Schmalensee's (1982) analysisof the role of uncertainty in creatingan advantage for pioneering brands ignores perceived differences among brands otherthan price and quality.A growing number of studies show that preferences and brand choice depend on avariety of contextual variables and constraints, including the composition of the set ofcompeting alternatives(Huber, Payne, and Puto 1982) and the order of deliberations oragendaeffect(Hauser 1986). These factors frame the choice process, affectingthe relativeimportance of particular attributes and shifting the standards of comparison.Taking a dynamic view, Carpenter and Nakamoto (1987, 1989) examine the com-petitive advantage that can arise from a context effect induced by the order of consumerlearning about products. In markets for multiattribute products and services for which

* Accepted by Diana L. Day, John U. Farley, and Jerry Wind.1268 0025- 1909/90/36 10/1 268$0 1.25

Copyright?B1990, The Instituteof Management Sciences

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STRATEGIES FOR LATE ENTRY INTO A MARKET 1269the value of attributes is initially ambiguous, experiences with brands tried earlier leadto consumer preference structures favoring these brands. Moreover, they show that thispreference formation process can createan asymmetry in preference between a dominantbrand that is strongly associated with the category (e.g., Jello, Levi's, Federal Express)and others.A later entrant that positions close to the dominant brand with no distinctivelydifferent attributes or benefits is less preferreddespite the similarity of its attributes tothose of the dominant brand.This asymmetry would appear to make late entry a daunting proposition. Yet, lateentrants often succeed, raising the central question considered in this paper: in a marketwith a dominant brand, what strategic options are available to a later entrant; whichstrategies are optimal, and when?We focus on a single late entrant competing in a two-dimensional perceptual spaceagainst a well-entrenched dominant brand using advertising and price. Recognizing dif-fering buyer tastes and asymmetric brand evaluation, we develop models of market shareand profit for both brands. We then (1) describe the options available to the late entrantassociatedwith a high or low differentiationpositioning, and (2) identify optimal strategiesfor different competitive conditions.Our model is innovative in its construction, drawing its assumptions from empiricaland experimental studies of brand choice and consumer behavior. This enables us toconstruct a game-theoretic model of late entry strategy that highlights the link betweenconsumer behavior and competition.As a result, our analysis produces new substantive nsights. Analyses based on traditionalconsumer models show that a later entrant positioning near the dominant brand willprovoke ruinous price competition, makingdifferentiated ate entry optimal (Lane 1980).On the other hand, if there is initial uncertainty only about quality, Schmalensee ( 1982)shows that me-too strategies (lower-priced copies of the dominant brand) are requiredin order to gain trial.In our analysis, either a high or low differentiation positioning for the late entrant maybe optimal depending on the extent of preference asymmetry. However, we show thatlow price strategies, such as me-too strategies, are not optimal. This is not because ofruinous price competition, but because of consumer preferences.Finally, the analysis suggests an alternative explanation for the persistent dominanceof leadingbrands.Contraryto the prevailingview that competitive advantagearises fromstrategicinvestment in entry or mobility barriers (Porter 1985), preference asymmetrymakes differentiated, high-priced entry optimal even if these entry barriers are absent.This provides an incentive for later entrants not to challengethe dominant brand directly,preserving its dominant position.

2. ConsumerChoice and Brand ProfitWe focus on a mature market dominated by a single brand-the so-called dominantbrand. The dominant brand is positioned in a multiattribute space and, at the mature

stage of product life, buyers know its position as well as their preferences for productattributes. We explicitly exclude emergingcategoriesfor which preferencesare still evolv-ing, categories for which buyers have multiple or shifting ideals (due to variety seekingor multiple uses), and entry that alters the existing perceptual structure.We begin to develop an analytical frameworkwith a model of utility for an individualas a function of brandpositions, pricesand advertising expenditures. From this, we derivean individual-level model of brand choice and, aggregatingacross individuals, a marketresponse model that incorporates preference asymmetry. We then model brand profitbased on this response structure and derive, subject to the specified rules of competition,optimal late entry strategies.



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1270 GREGORY S. CARPENTER AND KENT NAKAMOTO

2. 1. Buyer UtilityConsider a ouyer with ideal point I = (x*, y*) located in a two-dimensional space.The utility of either the incumbent or the later entrant can be summarized as

uii = vi(sih, S12, ai, pi) + ei, (1)where ui is the overall utility of brand i; vi is the deterministic component which dependson sij, the perceived similarity of brand i to I; Sl2, the perceived similarity of the twobrands, ai and pi, brand i's advertising and price respectively; and ei, a random utilitycomponent capturing idiosyncratic elements of utility. Utility functions of this generalform are common in both models of brand choice (e.g., Carpenterand Lehmann 1985;McFadden 1986), and in analysis of spatial competition and brand positioning (e.g.,Carpenter 1989; de Palma et al. 1985).The impact of positioning on utility is captured in equation (1) by the two measuresof perceived similarity, si1and sl2. The impact of the first of these is ratherintuitive andconsistent with most preference models: the greaterthe perceived similarity of a brand(either the dominant brand or the laterentrant) with the buyer's ideal, all else equal, thegreater the relative preference forthat brand (avil/si, ? 0, i = 1, 2). For example, Figure1shows two alternativepositions forthe later entrant (Brand 2), equally similar to Brand1 (the dominant brand). Brand 2' will be more highly valued by buyers than Brand 2,because Brand 2' is closer to the buyer's ideal point.The impact of perceivedsimilarity between brands on utility, however, variesby brandto reflect the preference asymmetry favoring the incumbent (Carpenter and Nakamoto1987, 1989). For the incumbent, increasingsimilarityto the laterentrant increasesutility,all else equal (i.e., aVM/0S12 ? 0). For the laterentrant,brandutilitydecreases as perceivedsimilarity with the incumbent increases, again other things equal (i.e., aV2/0s12 < 0).This asymmetry characterizesour notion of brand dominance, in that greater similaritybetween the two brands leads to greater valuation of the dominant brand and a lesserevaluation of the later entrant. This is illustratedin Figure2. The behavioral motivationfor this assumption is that dominant brands enjoy a perceptual distinctiveness in thecategory that allows them to overshadow similar competitors (c.f. Barsalou 1985; Smithand Medin 1981).Advertising plays two roles in this formulation.Along with product features,advertisingpositions brands,determining si, and s12. We referto this aspositioning advertising.Oncebrands are positioned, the images are maintained by maintenance advertising, denoted

y

Brand 2' *. Ideal Point* Brand 1

* Brand 2

x



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STRATEGIES FOR LATE ENTRY INTO A MARKET 1271

y

* Brand 2'Ideal PointBrand 2'.

* Brand 1

xFIGURE 2. Alternative Positions for a Later Entrant Equidistant from the Ideal Point.

by ai is equation (1). Maintenance advertising directly affects brand evaluation (Ray1982); greater expenditures increase brand evaluation, all else equal (i.e., avil/ai ? 0,i = 1, 2). Prices affect brand evaluation in the expected manner (avil/pi < 0, i = 1, 2),though buyers are less price sensitive in markets where a dominant brand has beenfollowed by no immediate rivals and subsequently become entrenched (Carpenter andNakamoto 1989).2.2. Brand Choice and Market Share

Buyers choose either the incumbent or the later entrant to maximize utility. Thus, foran individual with ideal point I, the probability that brand i is chosen ismi1(s1,a,p) = Prob(Ui> tij), i = 1,2, i#j, (2)

where s1 = (SII, S2I, S12), a = (a,, a2), p = (PI,P2), and Prob( * is a probability function.The choice probability, in, is also the market share of brand i among individuals withideal point I.The market share of brand i among all Q buyers is mi1weighted by the distributionof ideal points, f(I). More formally,

mi = fnmii(s, a, p) f(I) dI, i = 1, 2, (3)where mi is the market share of brand i, and where ml + M2 = 1.The actual shares, obviously, depend on the shape off( I), the taste distribution. Werestrict our analysis of unimodal and symmetric taste distributions, like the ones shownin Figure 3. Unimodality, which allows for variation in taste, simply implies that oneattribute combination is preferred by more consumers than any other. We refer to thisas simply the ideal point and denote it by I*. Symmetry, a simplifying assumption,implies that there are circles of equal numbers of consumers' ideal points surrounding*. We place no other restrictionson the tastedistribution, notablyon how much variationin tastes exists.Under these restrictions,it can be shown that mi depends on the perceived similarityof brand i to the ideal point, the perceived similarity between brands, and both brands'advertisingand prices. Therefore, we can write

min= m1(s, a, p), where s = (s1, s2, s12),



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1272 GREGORY S. CARPENTER AND KENT NAKAMOTOfi(I) f (M)

N~~~~~FIGURE 3. Two Symmetric, Unimodal Distributions of Consumer Ideal Points.

si being the similarity of brand i to J*. In this formulation, positioning, advertising, andprice affectbrands' relativeattractiveness and thus market shares, even though the overallsize of the market is Q units.2.3. Brand Profit

To construct a model of brand profit from which analytical rather than numericalsolutions can be obtained,we approximate the market share function using Kolmogorov'sTheorem:mi(s, a, p) =nil (si) + MiA2(s) + M'n3(s12) + mi4(ai)

+ 01i5(ai) + mi6(pP) + Mni7(pi), ,j 1, 2; i #j, (4)where m*,] 0, Mn,2 0, M113 2 0, M123 < 0, Ml14 ? 0, Mi15? 0, m,6< 0, Ml7 > 0.Kolmogorov has shown that a multivariate function such as mi, can always be bestapproximated (in the sense that Mnilobally minimizes sup Imi - i I)by a sum of uni-variate functions (Cheney 1983; Lorentz 1966). For comparable approaches, see Car-penter (1989), and Hauser and Shugan (1983). See Simon (1982a, 1982b) for empiricalanalyses using market response models of the general form of equation (4).Based on this additive approximation, profits for brand i are

Hi = Q(pi - ci)mi(s, a, p) - ai, i 1, 2, (5)where ci are unit costs. In addition, Hi is assumed to be concave.2.4. CompetitionThe incumbent and the later entrantcompete in two stagesto maximize profits. First,the later entrant positions its brandthrough a one-time outlay of positioning advertising,anticipating the equilibrium strategies and profits that will follow. Second, subject toboth brandpositions, both brandssimultaneously select optimal competitive (Nash equi-librium) maintenance advertisingexpendituresand prices. Sequential decision processes,typical of formal models of spatial competition (e.g., Carpenter 1989; de Palma et al.1985; Hauser 1988), and are reasonable if pricing and advertising decisions are madebased on product designs (Urban and Hauser 1980; Wind 1982).



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STRATEGIES FOR LATE ENTRY INTO A MARKET 12733. Optimal Competitive Pricing and Advertising

In stage-two competition both brands select advertisingand price levels, given positions,to maximize profits. More formally, for a given similarity vector, s = (SI, s2, S12), bothbrands select an optimal advertising expense and price, a* = (a*, a*) and p* = (p*,P2 ), that satisfies

flj/Oaj= OHj/pj = 0, i= 1, 2.We analyze the impact of positioning on optimal competitive advertising and pricingby considering the effect of varying (1) the similarity between the later entrant and theideal point, (2) the similarity between brands, and (3) both perceived similarity measuressimultaneously.

3. 1. Similarity to the Ideal PointThe later entrant's perceived distance from the ideal point affects both brands' strategiesfor pricing and advertising, holding fixed the perceived similarity of the brands.PROPOSITION 1. The closer the later entrant is perceived to be to the ideal point, thehigher its optimal competitive price and advertising expenditturesand, holding fixed theperceived similarity of the brands, the lower the dominant brands's optimal competitiveadvertising expenditureand price.Positioned far from the ideal point, later entrants often underprice and underspendthe dominant brand, e.g., C&C Cola. If the later entrant is closer to the ideal point,

differences in advertising spending and pricing tend to be smaller, as in the competitionbetween Coke and Pepsi. Proposition 1 is also consistent with results from models inwhich preferenceasymmetry is not an issue (e.g., Carpenter 1989;Lane 1980). suggestingthat preference asymmetry does not affect these relationships.3.2. Similarity to Dominant Brancd

The preferenceasymmetry does affect the impactof perceived similaritybetween brandson advertisingand pricing:PROPOSITION 2. As the perceived similarity between brancdsncrteases,the later en-

trant's optimal competitive advertisingexpendituresand price bothdecrease, whereas thedomninantbrand's optimal comnpetitive dvertising spending and price increase, holdingthe distance Qfbothfrom the ideal point fixed.Proposition 2 shows that asyvnmetric preferences produce as.vnwnetricdifferences inadvertising spending and prices in responseto differencesin perceived similaritybetweenbrands. The later entrant must cut price and advertising spending whereas the dominantbrand faces no such pressureas seen in the proliferationof lower priced, little advertisedbrands that frequently cluster around a dominant brand (Urban et al. 1986).

3.3. High VersitsLow2Differentiation in Late EntrYPropositions 1 and 2 reveal two opposing forces driving advertising spending andprices. Drawing closerto the ideal point (Figure 4), the later entrant'sadvertisingspendingand priceshould rise(Proposition 1 , but simultaneously drawingcloser to the incumbent,advertising spending and price should fall (Proposition 2).However, we can derive conditions under which certain advertising and price levelsare optimal, given the level of differentiation adopted by the late entrant. We define theasvmmetric competitive advantage of the dominant brand as m2I + M'23. Recall thatmn21 (?0) iS the marginal share benefit for Brand 2 of moving closer to the ideal point,



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1274 GREGORY S. CARPENTER AND KENT NAKAMOTO

yBrand 2

* Ideal PointBrand 2-* Brand 1

KFIGURE4. Low Differentiation(Brand 2) and High Differentiation (Brand 2') Positions for a Later Entrant.

and M23 (?0) is the marginal share cost for the later entrant of moving closer to theincumbent, i.e., m23 representsthe impact of the preference asymmetry on the marketshare of Brand 2. When m21 + m'23 s negative, there is a net cost to the later entrant ofbeing close to the dominant brand, reflecting ts strong asymmetric competitive advantage.Conversely, we term the dominant brand's asymmetric competitive advantage weakwhen m'21+ m 3 is positive.PROPOSITION 3. If the asymmetric competitive advantage for the dominant brand isstrong, then the less differentiatedthe second entrant, the lower its advertisingspendingand price shouildbe. If the asymmetric competitive advantage of the dominant brand isweak, then the less differentiatedthe position of the second entrant, the higher both itsadvertising spending and its price shoulldbe.Proposition 3 defines fourpotentially optimal combinations of positioning, advertisingspending, and price, based on high or low differentiation positions for the later entrantand strong or weak asymmetric competitive advantage for the dominant brand (seeFigure5). There aretwo low differentiationstrategies- challenger (with highadvertisingand price), and me-too (with low advertising and price). Pepsi's repositioning in the

Differentiation of Late EntrantHigh Low

Differentiated Me-TooStrong High Advertising LowAdvertisingHigh Price Low PriceAsymmetric CompetitiveAdvantage of DominantBrand Fringe Challenger

LowAdvertising High AdvertisingWeak LowPrice High Price

FIGURE . Optimal Advertising and Price Policies for Late Entry Given Position of the Later Entrant.



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STRATEGIES FOR LATE ENTRY INTO A MARKET 1275mid- 1970's head-to-head with the dominant brand in the cola market, Coca-Cola, pre-cipitating the so-called cola wars, exemplifies the challenger strategy (Kotler 1988). Onthe other hand, Purex bleach's positioning as a lower cost, less advertised alternative toClorox represents a me-too strategy.

There are likewise two high differentiation strategies,which we term a differentiatedstrategy(accompanied by high advertising spending and high price), and afringe strategy(accompanied by low advertising and price). Honda's original entry into the U.S. mo-torcycle market with a smaller displacement engine to compete with the larger Harley-Davidson, long the industry leader, illustrates a differentiated strategy. In-contrast, afringe strategy might be representedby Rent-a-Wreck in the auto rental industry, whichis clearly differentiatedfrom Hertz and competes with a low advertising budget and lowrelative prices.

4. Optimal Competitive PositioningTo establish the profitability of each of the four strategies, we consider stage-one com-petition in which the laterentrant picks a product position, anticipating the equilibriumadvertising expenditures and prices that will result. We analyze how profits depend onthe proximity of a brand to the ideal point, similarity to its competitor, and finally, both.Using these results,we derive the conditions under which each strategyis optimal; moreformally termed a subgame-perfect Nash equilibrium (Friedman 1977).

4. 1. Similarity to the Ideal PointProfits for the later entrant depend on the market share generated from its position,the optimal advertising spending and price implied by that position, and the reaction ofthe incumbent. Moving closer to the ideal point increases the late entrant's optimaladvertising spending and price. But the incumbent's optimal reaction includes cuttingprice and advertising spending (Proposition 1). Reduced advertising spending by thedominant brand will clearly benefit the late entrant, but falling prices will not. Still, thenet result is unambiguous:PROPOSITION 4. Profits,for the later entrant increase as its perceived similarity to theideal point increases, holding constant the perceivedsimilarity between brands.Proposition 4 supports an assumption implicit in many models of new product po-sitioning-being closer to the ideal point is more profitable (e.g., Urban and Hauser1980). However, this is assured only holding fixed the perceived similarity of the newentrant and the dominant brand.

4.2. Similarity to the Dominant BrandChangingthe perceived similarity of the laterentrant and incumbent also has multipleeffects. Greater perceived similarity between brands lowers the optimal advertising andprice of the later entrant but increasesthe advertising spending and price of the dominant

brand (Proposition 2). A higher price for the dominant brand boosts the profits of thelater entrant, but the higher advertising spending reduces the laterentrant's share, hurtingits profits. Again, however, the overall impact is unambiguous:PROPOSITION 5. Greaterperceived similarity of the later entrant to the incuimbentreduicesprofits of the later entrant, holding fixed the similarity of the brands to theideal point.Proposition 5 identifies the cost of undifferentiated late entry. Because of preferenceasymmetry, an undifferentiatedposition is associated with low relative advertisingspend-



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1276 GREGORY S. CARPENTER AND KENT NAKAMOTOing and low relativeprice, which translate directly into small marketshareand low profit.In other words, preferenceasymmetry can make undifferentiatedlate entry unattractive.4.3. EqutilibriumLate Entry Positions

Given Propositions 4 and 5, neither of two positions-similar to the dominant brandor differentiatedfrom it-guarantees higher profit under all conditions. However, we canspecify the superiorposition and the associated optimal advertisingspending and price,contingent on the magnitude of the asymmetric competitive advantage of the domi-nant brand.PROPOSITION6. If the dominant brand enjoys a strong asymmetric competitive ad-vantage, a differentiatedstrategy is optimal. If the asymmetric competitiveadvantage ofthe dominant brand is weak, a challengerstrategy is optimiial.Proposition 6 shows that, of our four strategies, either a challenger or differentiatedstrategyis optimal, and the condition specifying which is optimal is the same as that forProposition 3. Thus, when the dominant brand's advantage is weak, we know fromProposition 3 that a challengerstrategy dominates a me-too strategy,and a fringe strategydominates a differentiated strategy. Proposition 6 shows further that, in this case, thechallengerstrategyyields more profitthan a fringestrategy.Because of a smaller preferenceasymmetry, profits increase most as the later entrant positions near the ideal point, evenif that means direct competition with the dominant brand.Conversely, when the dominant brand's advantage is strong, Proposition 3 holds thateither the me-too or differentiatedstrategyis optimal. Here, Proposition 6 indicates that

the differentiated strategy yields more profit than the me-too strategy. Because of thepreference asymmetry, the cost of positioning near the dominant brand exceeds thebenefit of being perceivedas similarto the ideal point. These implicationsare summarizedin Figure 6.5. Implications

Our analysis suggeststhat differentiatingwith a high advertisingbudget and high priceis optimal if the dominant brand has a powerfulasymmetric competitive advantage.Thisis true even if the distribution of consumer tastes would appearto suggestotherwise. Theasymmetry means that any gain in market share from moving closer to the ideal point

Differentiation of Late EntrantHigh Low

Strong DifferentiatedAsymmetric CompetitiveAdvantage of DominantBrand

Weak S X Challenger

FIGURE 6. Optimal Entry Strategies for the Later Entrant.



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STRATEGIES FOR LATE ENTRY INTO A MARKET 1277will be more than offset by loss due to being closer to the dominant brand. As a result,profits of the later entrant increase with brand differentiation.Absent a strong asymmetric competitive advantage,directly challenging the dominantbrand with a high advertising budget and high price is optimal. A leading brand withoutasymmetric preference structure is not well protected from competition. Later entrantscan gain more in market share and profit by positioning close to the ideal point thanthey can lose by being less differentiated. This result is consistent with the logic of mar-keting models of new product introductions and the results of game-theoretic analysesof sequential entry (e.g., Wind 1982;Lane 1980). Challengerstrategiescan be enormouslysuccessful as in the cases of Pepsi, Avis, and Yamaha (Kotler 1988).An important consequence of our analysis is expected relatively poor performance ofme-too products, as observed by Urban et al. ( 1986). In our analysis, me-too strategiesdo not necessarily fail, but they are not optimal. Positioning near the dominant brandcan lead to price cutting by the later entrant, but a severe price war need not follow (assuggested in models of sequential entry). If the brand persists in pursuing a me-toostrategy, it may simply be a perennial also-run in terms of profits.Even so, fringe and me-too strategies should not be ignored completely. They clearlyrequire smaller budgets than either challenging the dominant brand or differentiatingfrom it, albeit with smaller rewards.In addition, if the development cost of a differentiatedproduct or the positioning cost of an undifferentiatedproduct are high, these costs, whenbalanced against the revenue implications of our analysis, might make these strategiesmore attractive.These implications are consistent with practitioner experience. We conducted an ex-ploratory survey of 60 middle-level marketingand sales executives after respondents wereexposed to the core concepts presented here in a two-hour session devoted to entry anddefensive marketing strategies.The mean rating of the importance and relevance of theconcepts, on a scale of 1 (utmost importance) to 5 (not important at all), was 1.51. Inaddition, qualitative assessments collected from 23 respondentswere strongly supportive,including anecdotes consistent with our results in a number of industries. Though morerigorous study is needed to test the rangeof applicabilityof our results, these preliminaryfindings are encouraging.Finally, our results suggest a competitive process in markets with a dominant brandthat differ significantly from one where all brands are playing on a level field. Ratherthan excess profits attracting entry and price competition, thus producing fair marketreturnsfor all firms, asymmetric preferencescan createcompetition in which a dominantbrandmay attractentry,but that entry places little downwardpressureon the incumbent'sprofits. This preservesratherthan eliminates the incumbent's competitive advantage. Inshort, asymmetries in consumer preference can be a source of persistent competitiveadvantage.'

' This research was supported in part by a grant fiom the Marketing Science Institute and faculty researchgrants from Columbia University and the University of Arizona. An extended version of this paper, includingAppendix with proofs of the propositions, is available from the authors.

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AND DONALD R. LEHMANN, A Model of Marketing Mix, Brand Switching, and Competition, J.Marketing Res., 22 (August 1985), 318-329.



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