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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Quaderni - Working Paper DSE ; No. 437

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alvisi, Matteo
• Event: Veröffentlichung
• (who): Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE)
• (where): Bologna
• (when): 2000

Further information

• DOI: doi:10.6092/unibo/amsacta/4861
• Handle: http://hdl.handle.net/10419/159278
• Last update: 10.03.2025, 11:42 AM CET