Sequential Entry in a Vertically Differentiated Duopoly
We analyse a model of vertical differentiation focusing on the trade-off between entering early and exploiting monopoly power with a low quality, versus waiting and enjoying a dominant market position with a superior product. We show that, in a relevant parameter region, there exists a unique equilibrium where the leader enters with a lower quality than the follower. This happens when the time span spent by the leader as a monopolist matters the most, i.e., in correspondence of sufficiently low discount rate values, low costs of quality improvement and high consumers' willingness to pay for quality.
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- Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
- Rosenkranz, Stephanie, 1997. "Quality improvements and the incentive to leapfrog," International Journal of Industrial Organization, Elsevier, vol. 15(2), pages 243-261, April.
- Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 783-832. Full references (including those not matched with items on IDEAS)
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