Market entry, capacity choice, and product differentiation in duopolistic competition under uncertainty

This paper examines the impact of pre-emptive competition for a leader's position on the investment strategies for market entry, production capacities, and product differentiation. In the absence of pre-emptive competition, the leader's production capacity exceeds the follower's, and the leader earns excess returns. In contrast, in its presence, the leader's production capacity decreases below the follower's, and the follower's investment value exceeds the leader's when the follower enters the market. These results suggest the new insight that pre-emptive competition provides the opportunity for the follower to expedite investing and to enhance investment value by capitalizing on the leader's insufficient capacity.