Quality competition and entry deterrence: When to launch a second brand

We study the rationale for an incumbent to launch a second brand when facing potential entry into a market with quality-differentiated products and a fringe producer. Depending on market size, the cost of a second brand and a potential entrant's setup cost the incumbent might use a second brand both when deterring and when accommodating entry. For low costs of brand proliferation, the high-quality firm will prevent entry with limit qualities or multiple brands. The high-quality incumbent will accommodate entry only if it cannot be prevented. Accommodation is always accompanied by an additional brand safeguarding the premium brand.