Sequential versus simultaneous choice with endogenous quality

Aoki, Reiko; Prusa, Thomas J.

doi:10.1016/0167-7187(95)00516-1

Cited by 107 publications

(86 citation statements)

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“…Tirole (1988) shows that θ is the inverse of the marginal utility of income so our assumption λ ≤ 1 implies that foreign consumers have higher incomes on average and more sophisticated tastes. Our specification of demand thus captures income differences between 5 In Section 6, we allow firms to choose quality from a continuum. 6 This normalization is without loss of generality provided that the main bulk of costs falls on fixed costs rather than on variable costs.…”

Section: The Modelmentioning

confidence: 99%

“…5 We adopt the cost specification of pure vertical product differentiation models, where the costs of quality mainly fall on fixed costs and involve only a small or no increase in unit variable costs (see Sutton, 1982, 1983). In particular, once the home (foreign) firm picks the quality of the goods to be offered, it pays a fixed cost C(q) = cq 2 /2, q = {q h , q } (C * (q) = c * q 2 /2) and produces at a marginal cost which is normalized to zero.…”

Section: The Modelmentioning

confidence: 99%

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Antidumping, Intra‐industry Trade, and Quality Reversals

Moraga-González

Viaene

2015

Int Economic Review

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We examine an export game where two firms (home and foreign), located in two different countries, produce vertically differentiated products. The foreign firm is the most efficient in terms of R&D costs of quality development and the foreign country is relatively larger and endowed with a relatively higher income. The unique (risk-dominant) Nash equilibrium involves intra-industry trade and the foreign producer manufactures a good of higher quality than the domestic firm. For low enough transport costs, this equilibrium is characterized by unilateral dumping; otherwise, reciprocal dumping emerges. We show that the implementation of antidumping (AD) policy can change significantly the nature of the game and give rise to various new Nash equilibria. For some parameters, an AD policy leads to a quality reversal in the international market whereby the low-quality firm becomes leader. We show that such a policy is desirable for the implementing country, though world welfare decreases. The paper also establishes an equivalence result between a price undertaking and an anti-dumping duty.JEL Classification: F12, F13

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Section: The Modelmentioning

confidence: 99%

Section: The Modelmentioning

confidence: 99%

Antidumping, Intra‐industry Trade, and Quality Reversals

Moraga-González

Viaene

2015

Int Economic Review

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“…Recent works on product R&D include Symeonidis (2003a), Bonanno and Haworth (1998), and Lin and Saggi (2002). 2 Scherer and Ross (1990) note that about three-quarters of R&D expenditure by firms in the United States falls into the category of product R&D. Fritsch and Meschede (2001) show that the share of product R&D in all R&D expenditure in German firms is about 61%.…”

Section: Introductionmentioning

confidence: 99%

“…Although symmetric duopoly (Aoki, 2003;Aoki and Prusa, 1997;Jinji, 2003) and asymmetric duopoly with a large technology gap (Park, 2001; Zhou et al, 2002) have been 1 Symeonidis (2003a) points out that product R&D directly affects the consumer surplus, whereas process R&D affects it only indirectly. Product R&D directly affects consumers' utility because it improves product quality.…”

Section: Introductionmentioning

confidence: 99%

“…1 Some data show that product R&D is empirically more important than process R&D (Scherer and Ross, 1990;Fritsch and Meschede, 2001). 2 As product-R&D-intensive industries tend to be highly concentrated, firms may invest strategically in product R&D. Consequently, it is unlikely that socially optimal product qualities are chosen by individual firms. Moreover, although social welfare is higher when the superior firms produce higher quality products, firms with inferior technology may strategically produce higher quality products than firms with superior technology.…”

Section: Introductionmentioning

confidence: 99%

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OPTIMAL POLICY FOR PRODUCT R&D WITH ENDOGENOUS QUALITY ORDERING: ASYMMETRIC DUOPOLY*

Jinji

Toshimitsu

2006

Aust Econ Papers

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We examine the optimal R&D subsidy/tax policy under a vertically differentiated duopoly. In a significant departure from the existing work, we consider the case of asymmetric costs of product R&D where there is a small technology gap between firms. In our analysis, the endogeneity of quality ordering is explicitly taken into account. We show that the optimal policy is described by a firmspecific subsidy schedule that is contingent on firms' quality choices. The subsidy schedule not only corrects the distortion in product quality but also selects the socially preferred equilibrium. Both Bertrand and Cournot cases are analyzed.

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The Low‐Quality Advantage in Vertical Product Differentiation

Schubert

2016

Manage Decis Econ

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By assuming a triangular distribution of consumers' willingness to pay for quality, this paper makes use of the stylized fact that low-income households are more numerous than highincome households, and thus, income distributions are right-skewed. Accordingly, we present a straightforward two-firm, two-stage vertical product differentiation model with qualitydependent marginal production costs, where the firm offering the low-quality product has the larger market share and profit than the top-quality competitor. This can be termed lowquality advantage and may explain the success of large retailers serving the masses by offering low-quality products.

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Sequential versus simultaneous choice with endogenous quality

Cited by 107 publications

References 5 publications

Antidumping, Intra‐industry Trade, and Quality Reversals

Antidumping, Intra‐industry Trade, and Quality Reversals

OPTIMAL POLICY FOR PRODUCT R&D WITH ENDOGENOUS QUALITY ORDERING: ASYMMETRIC DUOPOLY*

The Low‐Quality Advantage in Vertical Product Differentiation

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