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Cournot and Bertrand Competition with Vertical Quality Differentiation

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  • Aoki, Reiko

Abstract

We consider a model of vertical quality differentiation. We show that in Coumot (quality setting) competition firm's profit is increasing in its own quality and decreasing in its rival's quality. This differs from the results for Bertrand (price setting) competition and conforms to some previously made assumptions concerning profit functions in a setting of vertical quality differentiation. However, even in this case, when an initial stage in which firms make as costly investment in quality is added, an asymmetric equilibrium results. This follows from the fact that in both types of competition, it is possible to improve profit by moving away (either by choosing higher or lower quality) from rival's quality. This paper is the same as manuscript dated 1988 of the same name.

Suggested Citation

  • Aoki, Reiko, 2001. "Cournot and Bertrand Competition with Vertical Quality Differentiation," Working Papers 146, Department of Economics, The University of Auckland.
    • Handle: RePEc:auc:wpaper:146
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    File URL: http://hdl.handle.net/2292/146
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    Cited by:

    1. Hong, Xianpei & Zhou, Menghuan & Gong, Yeming, 2021. "Dilemma of quality information disclosure in technology licensing," European Journal of Operational Research, Elsevier, vol. 294(2), pages 543-557.

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