PRODUCT LAUNCH DECISIONS BY DOMINANT AND FRINGE FIRMS

In this paper we analyze the product launch decisions by dominant and fringe firms. In particular, we explore three questions in the product entry process: which firms enter, when they enter, and what happens after they enter. To do this, we use a database of all product launches in the desktop laser printer industry from 1984 to 1997. We show that dominant firms are quite selective in the submarkets they pursue. In particular, they often stay out of the technologically advanced markets, and choose to enter markets well behind the technological frontier set by fringe firms. When dominant firms do enter submarkets, they are usually early entrants, launching products before many fringe firms. Additionally, we analyze what happens to markets after entry by dominant firms. Many antitrust scholars and policy-makers fear that dominant firm entry into technology markets forces out fringe competitors, leading to high market power for the dominant entrant. We find that both entry and exit rates increase after a dominant firms enters a submarket, but that there is a net increase on average in the number of competing models and substantial growth in demand. In addition, while dominant firms introduce models priced at a premium relative to the average in a product class, the average price within that class tends to decline more as a result of competition from dominant firms than from fringe firms