Entry and exit in a vertically differentiated industry
AbstractThis paper presents a duopoly model of firm rivalry in a vertically differentiated industry when market dynamics is explicitly accounted for. It shows how the interplay between demand (degree of product differentiation, demand elasticity) and cost (fixed and quality costs) factors determine firms' relative strength when quality is irreversible. The main strategic choices are product quality, price and the timing of entry and exit. Further, firms incur sunk quality costs at time of entry and operating fixed costs of maintaining quality. Although the low quality firm may outlast its rival in the declining phase, both firms wish to be the "quality leader".
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Bibliographic InfoPaper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1107.
Length: 35 pages
Date of creation: Mar 2011
Date of revision:
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Entry; Exit; Vertical product differentiation;
Other versions of this item:
- S. Esteve-Pérez, 2011. "Entry and exit in a vertically differentiated industry," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 61(4), pages 413-440, December.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-19 (All new papers)
- NEP-BEC-2011-03-19 (Business Economics)
- NEP-COM-2011-03-19 (Industrial Competition)
- NEP-CSE-2011-03-19 (Economics of Strategic Management)
- NEP-IND-2011-03-19 (Industrial Organization)
- NEP-MIC-2011-03-19 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Esteve-Perez, Silviano, 2005. "Exit with vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 227-247, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silviano Esteve).
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