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Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities

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  • Mario Samano
  • Marc Santugini

Abstract

We analyze the type of market structures that arise in the long-run when quality externalities and asymmetric R&D capabilities exist in the context of a quality-ladder dynamic model. An example of such externalities is a patent release by the leading fi rm: an improvement of quality of this firm's good a ects the quality of the other fi rms' products. This externality can be thought of as an increase in compatibility in a network. We show that it is possible for this model to generate, in the long-run, multi-modal probability distributions over di fferent market structures from the same parameter values. In some cases, the lagging rm may even become the dominant fi rm depending on the degree of the externality. This may have implications for the estimation and simulation of this class of models.

Suggested Citation

  • Mario Samano & Marc Santugini, 2017. "Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities," CIRANO Working Papers 2017s-24, CIRANO.
    • Handle: RePEc:cir:cirwor:2017s-24
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    Cited by:

    1. Adriana Gama & Mario Samano, 2021. "Free and second‐best entry in oligopolies with network effects," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 746-759, August.

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    More about this item

    Keywords

    Differentiated-good markets; Quality-ladder model; Externalities; Industry dynamics; Market structures;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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