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Close But Not Too Close? Optimal Copycat Strategies in the Light of Negative Publicity by the Original Product

Joachim Grosser, Hendrik Sonnabend Orcid Logo, Bastian Westbrock Orcid Logo

The B.E. Journal of Economic Analysis & Policy, Volume: 24, Issue: 2, Pages: 649 - 658

Swansea University Author: Bastian Westbrock Orcid Logo

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DOI (Published version): 10.1515/bejeap-2022-0456

Abstract

This paper contributes to the understanding of how brand scandals related to a brand leader’s product affect the follower firm’s choice between copycatting and independent product development. In a model of vertical product differentiation, we show that it is optimal for the copycatter to follow a ‘...

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Published in: The B.E. Journal of Economic Analysis & Policy
ISSN: 1935-1682
Published: Walter de Gruyter GmbH 2024
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa67535
Abstract: This paper contributes to the understanding of how brand scandals related to a brand leader’s product affect the follower firm’s choice between copycatting and independent product development. In a model of vertical product differentiation, we show that it is optimal for the copycatter to follow a ‘safe distance’ strategy which guarantees a certain degree of protection against the negative spillovers associated with a brand scandal to the leader. Nevertheless, when the follower firm can choose between copycatting and decoupling, it chooses a higher quality for its copycat product because of the lower development costs. The decision for or against copycatting thus depends on a trade-off between development costs and the possibility of negative spillovers. Finally, we show that the threat of a scandal can lead to an additional indirect welfare cost because it diverts the follower’s choice away from a welfare-maximizing copycat strategy.
Item Description: Letter
Keywords: vertical product differentiation; copycatting; brand scandals
College: Faculty of Humanities and Social Sciences
Issue: 2
Start Page: 649
End Page: 658

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