Sequential Entry in a Vertically Differentiated Duopoly
AbstractWe analyse a model of vertical differentiation focusing on the trade-off between entering early and exploiting monopoly power with a low quality, versus waiting and enjoying a dominant market position with a superior product. We show that, in a relevant parameter region, there exists a unique equilibrium where the leader enters with a lower quality than the follower. This happens when the time span spent by the leader as a monopolist matters the most, i.e., in correspondence of sufficiently low discount rate values, low costs of quality improvement and high consumers' willingness to pay for quality.
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Bibliographic InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 492.
Date of creation: 2003
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Other versions of this item:
- Luca Lambertini & Piero Tedeschi, 2006. "Sequential Entry in a Vertically Differentiated Duopoly," Working Papers 20060503, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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