Strategic Choice of Quality When Quality is Costly: The Persistence of the High-Quality Advantage
In a two-firm, two-stage model of vertical product differentiation, I show that for every convex fixed-cost function of quality, the firm that chooses the higher quality at the first stage earns the higher profits. The result holds for the pure-strategy equilibrium in the simultaneous-quality game, and it holds as well if firms choose their qualities in sequential order.
Volume (Year): 28 (1997)
Issue (Month): 2 (Summer)
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