Quality Improvement to Meet Competitive Fringe
AbstractWe investigate what kind of competitive pressure induces existing firms to engage in more intensive innovation activities. We examine two types of competitive pressure: a price decrease in competitive fringe firms and a quality improvement therein. We use an oligopoly model with vertical differentiation to investigate this question. We show that a decrease in the exogenous price of competitive firms induces the two existent leading firms (one high-quality firm and one mid-quality firm) to engage in quality investments more if the ex ante quality level of the high quality product is large enough; otherwise, only the mid-quality firm engages more in quality investment. We also show that an increase in the exogenous quality level of competitive firms diminishes the incentive of the mid-quality firm to engage in quality investments.
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Bibliographic InfoPaper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0854.
Date of creation: Aug 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-COM-2012-08-23 (Industrial Competition)
- NEP-INO-2012-08-23 (Innovation)
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- Nilssen, Tore & Pita Barros, Pedro Luis, 1998.
"Industrial Policy and Firm Heterogeneity,"
CEPR Discussion Papers
1986, C.E.P.R. Discussion Papers.
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