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Help us to help you: how consumer data can alter quality races

Author

Listed:
  • Christian Trudeau

    (Department of Economics, University of Windsor)

  • Zheng Wang

    (Capital University of Business and Economics)

Abstract

Recent technological changes have made it easy for firms to collect data on their consumers, which in turns allows them to improve the efficiency of their R&D. We explore the strategic interaction that occurs when two firms compete in a vertically-differentiated market to acquire this data and invest in R&D to set the quality of their product. Among our results, we find that if the initial quality lead is not too large, there exists equilibria where the laggard is able to reverse the lead by being particularly aggressive in acquiring this consumer data. While total welfare is higher when the initial leader maintains its lead, consumers prefer leapfrogging.

Suggested Citation

  • Christian Trudeau & Zheng Wang, 2015. "Help us to help you: how consumer data can alter quality races," Working Papers 1501, University of Windsor, Department of Economics.
    • Handle: RePEc:wis:wpaper:1501
    as

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    File URL: http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1501.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    consumer data; vertical differentation; quality race; leapfrogging;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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