A Simple Model of Pricing under Sequential Entry.

We consider a two period differentiated product duopoly in which firms introduce a product sequentially. The entry sequence is exogenously de-termined. Consumers can choose to purchase the product from the first entrant in the first period, or wait and purchase the product from either firm in the second period. We show that the second period price of the later entrant is higher than the second period price of the first entrant. This pricing is driven by the fact that the consumers who choose not to purchase the product in the first period are those who have relatively high values for the later entrant’s product. This price gap is increasing in the degree of product differentiation. Also, when the degree of brand differ-entiation is high, and the discount factor is low, the total profits of the first entrant are higher when it competes the second period.