Dynamic Duopoly with Vertical Differentiation
I analyse a differential game where firms, through capital accumulation over time, supply vertically differentiated goods. This proves that several results obtained by the static approach are not robust. I show that (i) the sustainability of the duopoly regime is conditional upon the level of firms’ R&D investments; (ii) there are quality ranges where the low quality firm invests more than the high quality firm; (ii) there are quality ranges where the low quality firm’s profits are larger than the high quality firm’s.
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