Strategic Brand Proliferation: Monopoly versus Duopoly

Abstract The aim of this paper is to investigate whether the existence of a rival firm can encourage another firm to proliferate its brand. To do so, we compare the incentive to invest in brand proliferation in monopoly and the one in duopoly. We find that in duopoly there are asymmetric equilibria where only one firm proliferates its brand but the other does not even if they are identical. In that case, the incentive to invest in brand proliferation is stronger in duopoly than in monopoly if two firms provide closer substitutes. Further we also show that the multi-product firm increases its profit by providing closer substitutes. It implies that an incumbent can deter entry with commitment by proliferating its brand. Such a result is in contrast with Judd [RAND J. Econ 16 (1985) 153].