Bidimensional vertical differentiation

In markets where product quality is important, more than one characteristic is usually necessary to define product quality. Standard models maintain that: (i) in a duopoly there will be a quality leader no matter wether the product can incorporate one or two vertical attributes; (ii) differentiation pertains only to one attribute. By contrast, in our set-up there are also equilibria where the quality leader is better in two attributes, and others where there is cross leadership, namely a situation where each firm designs a product to dominate the other in one characteristic. The role of cost complementarities is also examined. Applications to Minimum Quality Standards, home bias effects (or "perception bias effects"), and a tax on quality products are sketched, showing that assessments based on standard models may be incomplete.