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Sequential vs. Simultaneous Choice With Endogenous Quality

Author

Listed:
  • Thomas J. Prusa

    () (Rutgers University)

  • Reiko Aoki

    () (SUNY-Stony Brook)

Abstract

In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.

Suggested Citation

  • Thomas J. Prusa & Reiko Aoki, 1997. "Sequential vs. Simultaneous Choice With Endogenous Quality," Departmental Working Papers 199510, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:199510
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    Citations

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    Cited by:

    1. Lambertini, Luca & Tampieri, Alessandro, 2012. "Low-quality leadership in a vertically differentiated duopoly with Cournot competition," Economics Letters, Elsevier, vol. 115(3), pages 396-398.
    2. Li, Dong & Nagurney, Anna, 2015. "A general multitiered supply chain network model of quality competition with suppliers," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 336-356.
    3. Eugen Kováč & Krešimir Žigić, 2014. "International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy Versus Free Trade," Economica, London School of Economics and Political Science, vol. 81(323), pages 491-521, July.
    4. Rajat Acharyya, 2005. "Consumer Targeting Under Quality Competition In A Liberalized Vertically Differentiated Market," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 129-150, June.
    5. Hodaka Morita & Xuan Nguyen, 2012. "FDI and Technology Spillovers under Vertical Product Di erentiation," Discussion Papers 2012-19, School of Economics, The University of New South Wales.

    More about this item

    Keywords

    quality choice; sequential and simultaneous quality choice; timing of R&D investment; vertical quality differentiation;

    JEL classification:

    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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