Quality Choice, Fixed Costs and Equilibrium in Models of Vertical Differentiation

Alvisi, Matteo (2000) Quality Choice, Fixed Costs and Equilibrium in Models of Vertical Differentiation. Bologna: Dipartimento di Scienze economiche DSE, p. 20. DOI 10.6092/unibo/amsacta/4861. In: Quaderni - Working Paper DSE (437). ISSN 2282-6483.
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Abstract

I provide a full characterization of the quality choice in duopolies with vertical differentiation, without assuming ex-ante if the market is fully covered or not. This will allow to show that covered or uncovered market configurations are endogenous outcomes of firms’ strategic interaction. To this purpose, I assume that firms are characterized by quadratic fixed costs of quality improvements and check whether pure-strategy subgame perfect equilibria with a corner solution always exist. Finally, my results are compared to the quality choice that maximizes the total surplus of the economy. I show that the welfaremaximizing choice of qualities does not have to be found in the same market configuration of the corresponding market equilibrium.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Alvisi, Matteo
Keywords
quality, oligopoly, vertical differentiation, market configuration, subgame perfect equilibrium, welfare analysis.
Subjects
ISSN
2282-6483
DOI
Deposit date
15 Mar 2016 09:45
Last modified
09 Jun 2016 09:44
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