6533b871fe1ef96bd12d23dc
RESEARCH PRODUCT
Entry and exit in a vertically differentiated industry
Silviano Esteve-pérezsubject
Price elasticity of demandEconomics and EconometricsComputingMilieux_THECOMPUTINGPROFESSIONmedia_common.quotation_subjectProduct differentiationProduct (business)Microeconomicsjel:L11entry exit vertical product differentiationjel:L13Quality (business)BusinessFixed costQuality costsDuopolyRivalryIndustrial organizationmedia_commondescription
This paper presents a duopoly model of firm rivalry in a vertically differentiated industry when market dynamics is explicitly accounted for. It shows how the interplay between demand (degree of product differentiation, demand elasticity) and cost (fixed and quality costs) factors determine firms’ relative strength when quality is irreversible. The main strategic choices are product quality, price and the timing of entry and exit. Further, firms incur sunk quality costs at time of entry and operating fixed costs of maintaining quality. Although the low quality firm may outlast its rival in the declining phase, both firms wish to be the “quality leader”.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2011-12-01 | Acta Oeconomica |