Contribution Research-in-Progress Paper
03 - Decision Support
Challenging the Incumbent: The Impact of Product Quality and Network Effects
This work explores the implications of product quality and network effect on the decision of a firm to enter a market with the goal of displacing an already entrenched incumbent. A conceptual model is developed to simulate a market of buyers and sellers. Simulations are carried out considering buying preferences based on product quality and network effects in conjunction with market characteristics like the prior existence of a customer base and population peculiarities. The simulation results are analysed to gain an understanding of conditions under which the new entrant might be able to displace the incumbent. In such situations a power law is observed to hold between the minimum quality of the product that must be offered by the entrant and the fraction of the population that favours product quality over herding inclinations. The findings contribute to the managerial understanding of the complex interactions between different forces that may affect market entry decisions.