Sequential product positioning under differential costs

This paper examines the product positioning decisions of firms that enter a market sequentially and that have potentially different cost structures. I t shows that if the first mover knows the second mover to have a lower prod uction cost, it positions away from the most attractive location in the mar ket; further, the larger the second-mover's cost advantage, the farther awa y the first mover positions from the most attractive location. The payer al so models uncertainty in the first-mover's mind about the later-entrant's c ost structure, and shows that an increase in this uncertainty (in the sense of mean-preserving spread) also makes the first mover position farther fro m the most attractive location in the market. Overall, this payer suggests that unless the first entrant in a market is certain that the later entrant will not have a superior cost structure, it may be better off leaving the best position in the market vacant and having a niche or fringe product.