In many markets consumers have transaction or learning "switching costs"
between functionally undifferentiated brands. New entry into such markets
may be deterred either by large customer bases and/or large switching
costs, which deny customers to an entrant, or by small customer bases
and/or small switching costs, which mean an incumbent will respond
aggressively to an entrant. An incum bent threatened by entry may
therefore price either lower or higher than otherwi se. A firm with the
right to enter early may make less profits over time than an otherwise
identical firm that is unable to enter the market until later. Copyright 1987 by Royal Economic Society.
