Costs are an important determinant of prices charged by
firms. The primary purpose of this paper is to study the
impact of costs associated with differentiation and
niche strategies on firm’s positioning and pricing
decisions in a horizontally differentiated market. We
analyze both sequential and simultaneous entry cases. In
the sequential case, the cost of differentiation is an
additional cost incurred by the second entrant and it
depends on the degree of differentiation between itself
and the first mover. The cost of following a niche
strategy is a market level cost affecting both firms
whereby firms incur a positive or negative cost if they
want to make a niche product. pdf