Optimal Pricing And Quality Choice When Investment In Quality Is Irreversible
AbstractThis paper examines the price and quality choice of a single product, risk-neutral monopolist who can delay irreversible investments required for market entry. It is shown that the price and quality she chooses at entry increase with uncertainty about the size of future demand. In a Stackelberg leader-follower game, the leader and follower pre-commit immediately up to a certain level of uncertainty. In this case the leader produces the higher quality good. When uncertainty is higher than this threshold, the follower will wait and enter the market later with a higher quality good. Copyright Blackwell Publishing Ltd. 2004.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Journal of Industrial Economics.
Volume (Year): 52 (2004)
Issue (Month): 4 (December)
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Other versions of this item:
- Enrico Pennings, . "Optimal pricing and quality choice when investment in quality is irreversible," Working Papers 206, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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