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Duopoly quality commitment

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  • Nie, Pu-yan

Abstract

Firms' quality commitment can efficiently improve the demand. This paper addresses the quality commitment under the duopoly. By establishing a Cournot model, the effects of quality commitment are discussed. Firstly, under one-sided quality commitment, the higher efficiency firm committing in quality brings about larger price difference, larger price dispersion and higher social welfare than the lower efficiency firm launching quality commitment. Secondly, bilateral quality commitment reduces price difference and price dispersion. Thirdly, the social welfare reaches maximization under bilateral quality commitment. Finally, two firms' optimal strategies are no-commitment or simultaneously commitment and the threshold value to commitment in quality is outlined.

Suggested Citation

  • Nie, Pu-yan, 2013. "Duopoly quality commitment," Economic Modelling, Elsevier, vol. 33(C), pages 832-842.
  • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:832-842
    DOI: 10.1016/j.econmod.2013.06.010
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    References listed on IDEAS

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    More about this item

    Keywords

    Product substitutability; Quality commitment; Duopoly; Game theory;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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