On the Robustness of the High-Quality Advantage under Vertical Differentiation
AbstractThe idea that the high-quality provider in a vertically differentiated duopoly earns the higher profit (the so-called “high-quality advantage”) appears to be an established fact among economists. This note shows that the high-quality advantage is not a robust feature of vertical differentiation models. A low-quality advantage can be predicted under perfectly plausible assumptions, such as a concave utility–quality and/or a convex unit cost–quality relation. The existence of a high- or a low-quality advantage depends on the nature of the firms’ strategic interaction. Copyright Springer Science + Business Media, LLC 2006
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Bibliographic InfoArticle provided by Springer in its journal Journal of Industry, Competition and Trade.
Volume (Year): 6 (2006)
Issue (Month): 3 (December)
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Web page: http://springerlink.metapress.com/link.asp?id=105724
vertical differentiation; high-quality advantage; maximum differentiation; covered market equilibrium; non-linearity; L13; L15;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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