Differentiated Entry or “Me-Too” Entry in Bertrand and Cournot Oligopoly

Abstract

When would an oligopolistic entrant imitate an incumbent’s product (“me-too” entry), rather than horizontally differentiate? We allow an entrant's product choice to vary endogenously with the cost of product differentiation. Such endogenity of product differentiation significantly affects the comparison of Bertrand and Cournot duopoly. We find that if Bertrand entry occurs, products are differentiated, whereas there is a substantial region in which Cournot entry involves a homogenous product. Bertrand prices may be higher than Cournot prices; and, if product differentiation costs are low enough to induce Cournot differentiated entry, then Bertrand industry profit equals or exceeds Cournot industry profit.