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Low-Quality Leadership in a Vertically Differentiated Duopoly with Cournot Competition

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  • L. Lambertini
  • A. Tampieri

Abstract

We model a vertically differentiated duopoly with quantity-setting firms as an extended game in which firms noncooperatively choose the timing of moves at the quality stage, to show that at the subgame perfect equilibrium sequential play obtains, with the low-quality firm taking the leader's role.

Suggested Citation

  • L. Lambertini & A. Tampieri, 2011. "Low-Quality Leadership in a Vertically Differentiated Duopoly with Cournot Competition," Working Papers wp750, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp750
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    References listed on IDEAS

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    1. van Dijk, Theon, 1996. "Patent Height and Competition in Product Improvements," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 151-167, June.
    2. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    3. Ulrich Lehmann-Grube, 1997. "Strategic Choice of Quality When Quality is Costly: The Persistence of the High-Quality Advantage," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 372-384, Summer.
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    5. Reiko Aoki, 2003. "Effect of credible quality investment with Bertrand and Cournot competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 653-672, March.
    6. Thomas J. Prusa & Reiko Aoki, 1997. "Sequential vs. Simultaneous Choice With Endogenous Quality," Departmental Working Papers 199510, Rutgers University, Department of Economics.
    7. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    8. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    9. Luca Lambertini & Piero Tedeschi, 2007. "On the Social Desirability of Patents for Sequential Innovations in a Vertically Differentiated Market," Journal of Economics, Springer, vol. 90(2), pages 193-214, March.
    10. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
    11. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    12. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    13. Aoki, Reiko & Prusa, Thomas J., 1997. "Sequential versus simultaneous choice with endogenous quality," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 103-121, February.
    14. Luca Lambertini & Piero Tedeschi, 2007. "Would You Like To Enter First With A Low‐Quality Good?," Bulletin of Economic Research, Wiley Blackwell, vol. 59(3), pages 269-282, July.
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    Cited by:

    1. Lambertini, Luca & Tampieri, Alessandro, 2013. "Endogenous timing in quality choices and price competition," Economics Discussion Papers 2013-37, Kiel Institute for the World Economy (IfW Kiel).
    2. Wang, Rong-Kuan & Hu, Die, 2017. "Time-cost substitutability, earlycutting threat, and innovation timing," Economics Letters, Elsevier, vol. 156(C), pages 88-91.
    3. L. Lambertini & A. Tampieri, 2012. "Endogenous Timing in Quality Investments and Price Competition," Working Papers wp815, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Amiya K. Chakravarty, 2021. "Blending Capacity on a Rideshare Platform: Independent and Dedicated Drivers," Production and Operations Management, Production and Operations Management Society, vol. 30(8), pages 2522-2546, August.
    5. Lei Fang & Sai Zhao, 2022. "The manufacturing–marketing conflict under vertical product differentiation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4028-4040, December.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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