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 Università degli Studi di Milano-Bicocca, Dipartimento di Statistica in its series Working Papers with number 20060503.
Length: 35 pages
Date of creation: May 2006
Date of revision:
vertical differentiation; product innovation; monopoly rent;
Other versions of this item:
- L. Lambertini & P. Tedeschi, 2003. "Sequential Entry in a Vertically Differentiated Duopoly," Working Papers 492, Dipartimento Scienze Economiche, Universita' di Bologna.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-27 (All new papers)
- NEP-COM-2006-05-27 (Industrial Competition)
- NEP-IND-2006-05-27 (Industrial Organization)
- NEP-MIC-2006-05-27 (Microeconomics)
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