Consumer-generated communication processes have drawn increasing attention of marketers and researchers. However, an underresearched issue is that interpersonal communications are not always brand specific. Thus, a person can adopt a brand either as a result of communication with adopters of that brand (within-brand influence) or as a result of an interaction with adopters of competing brands (cross-brand influence). This study shows that the interplay between within- and cross-brand influence can have a substantial effect on the growth of markets under competition. The authors develop a model that explicitly represents these two influences and focus on the case of two otherwise identical competing brands with different entry times. As a result of within-brand influence, current customers create an interaction-based advantage for the first entrant, which grows with time. Thus, we illustrate how customers should be viewed as market assets who yield increasing returns during the diffusion process. Conversely, cross-brand influence enables a market follower to enjoy a shorter takeoff time. Given the combination of both, the authors predict the “dual pattern,” characterized by a fast takeoff for a follower, followed by a widening gap in favor of the first entrant, all else being equal. They show that such a pattern dominated the market growth of the cellular industry in Western Europe. They explain the reasons behind this dual pattern, rule out straightforward alternative explanations, and discuss the managerial implications.
Product Market Competition and Economic Growth: The Role of Increasing Returns to Production Specialization
