How to protect your premium product from low-price competitors: Price, quality, or portfolio adjustment?

• I model a brand manufacturer's response to market entry in a game-theoretic framework.
• I consider price, quality or portfolio adjustment as responses by the manufacture.
• Depending on the situation I analyze the manufacturer’s optimal response.
• Situational factors are launching costs, entry uncertainty, or technological progress.

In a game-theoretic framework, I analyze how a brand manufacturer can thwart new entrants into its market. Three strategic options are considered, a price adjustment of the premium product, a quality adjustment of the premium product and a portfolio adjustment of adding a fighter brand. In a basic setup, I show that the incumbent's best response to entry is to choose a portfolio adjustment. If, however, the incumbent is uncertain about whether the rival firm will enter the market, a price adjustment of the premium product might be the better alternative if launching the fighter brand is associated with costs. Moreover, if technological progress improves the efficiency of product development, a combined quality and portfolio adjustment might be the best alternative for the incumbent.