Brand Popularity, Stackelberg Leadership, and Product Introduction in Industries with Word of Mouth Communication

Two brands of unequal popularity are to introduce new competing products. The market is characterized by word of mouth effects increasing the popularity of a brand adopted in the first of two periods. However, to be early to market a brand must sink a high fixed development cost. The paper investigates the impact of popularity on brands' incentives and their strategic choices of entry strategies. It is shown that a popular brand has less to gain for being first in the market, but more to loose if being second, than its unpopular competitor has. Moreover, the paper studies how equilibrium is connected to the leadership by the popular and the unpopular brand. Lastly, comparing the outcomes under each brand's leadership reveals their individual preferences for leader and follower roles