Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 17: Defending Mail Markets Against New Entrants: An Application of the Defender Model
Christian Jaag†, Helmut Dietl‡, Urs Trinkner§ and Oliver Fürst¶ 44 45 46 47 1 INTRODUCTION Market positioning has long been an intensely discussed topic in the economics and marketing literature. Until the early 1980s, the literature mainly tackled the issue of optimal new brand positioning. Existing brands thus had an idea of how a new brand might attack. The reverse question of how to optimally defend its market share and profit against an attack remained unanswered until the paper by Hauser and Shugan (1983), in which they introduced a model that goes beyond the traditional analysis of offensive new-brand positioning by focusing on the defending rather than the attacking brand (‘defender model’). One basic observation of the authors was that in most markets incumbents react to competition by lowering prices. In some industries, however, established firms defend their profits against market entrants by increasing product prices. These differences are explained by heterogeneous consumer preferences. Hauser and Shugan modeled this heterogeneity with a continuous distribution of consumer tastes. Another key assumption of their model is the ‘per-dollar’ measure of product utility. Instead of integrating price as a separate dimension in a traditional perceptual map (such as Urban and Hauser, 1980; Hauser and Gaskin, 1984), the authors plotted each quality dimension in relation to the product’s price as proposed by Hauser and Simmie (1981). From the model, qualitative normative implications on how established firms should defend their profits when facing an attack by a new competitive product can be derived. Hauser...
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