Interaction between innovation choice and market-entry timing in a competitive fashion supply chain

We consider a duopoly in which a premium firm (Firm 1) competes with a regular firm (Firm 2). They launch a new fashion product, adopting one of two types of innovation, qualitative or non-qualitative, which offer different levels of market acceptance and uncertainty. We consider two groups of fashion consumers, snobs and conformists (defined by preference for exclusivity or conformity). We first examine the case in which the premium firm commits to entering the market first and chooses its type of innovation, and then the regular firm decides on market-entry timing and innovation type. The price game and the strategy interaction between the two firms are examined. We show that consumers' exclusivity and conformity positively impact the optimal decisions of the two firms when the initial market share of snobs is large. When the market-share loss due to late entry is sufficiently high, Firm 1 may prefer a non-qualitative innovation under certain identified conditions; otherwise, it always prefers a qualitative innovation. Firm 2 always benefits from Firm 1's choice of qualitative rather than non-qualitative innovation. We further discuss the strategy interaction when the premium firm commits to entering the market late.