Challenges of Existing in a Market as a Small, Low-quality Producer

Challenges of Existing in a Market as a Small, Low-quality Producer This paper explores the strategy of a small firm entering a monopolist's market thereby creating a duopoly market. The small firm avoids competing with the larger, incumbent firm by producing a lower-quality product at a lower price. The model here establishes an equilibrium under a specific set of assumptions and examines how exogenous factors affect prices, qualities and profits. Although the strategy might allow the firm to enter and earn a profit, the market conditions may make this position much less desirable to that of the large firm for several reasons. In the case explored here where tastes for the product are uniformly distributed, the small firm's profit is about six percent of that of the larger firm. The smaller firm is more severely threatened by the entrance of a third firm. Furthermore, even if the smaller firm can cut costs, its position is not well suited for exploiting such increases in efficiencies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Challenges of Existing in a Market as a Small, Low-quality Producer

Loading next page...
 
/lp/springer_journal/challenges-of-existing-in-a-market-as-a-small-low-quality-producer-qDYPVwFHzD
Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1023/A:1015225221163
Publisher site
See Article on Publisher Site

Abstract

This paper explores the strategy of a small firm entering a monopolist's market thereby creating a duopoly market. The small firm avoids competing with the larger, incumbent firm by producing a lower-quality product at a lower price. The model here establishes an equilibrium under a specific set of assumptions and examines how exogenous factors affect prices, qualities and profits. Although the strategy might allow the firm to enter and earn a profit, the market conditions may make this position much less desirable to that of the large firm for several reasons. In the case explored here where tastes for the product are uniformly distributed, the small firm's profit is about six percent of that of the larger firm. The smaller firm is more severely threatened by the entrance of a third firm. Furthermore, even if the smaller firm can cut costs, its position is not well suited for exploiting such increases in efficiencies.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 13, 2004

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off