Entry and exit in a vertically differentiated industry

No 1107, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: 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".

Keywords: Entry; Exit; Vertical product differentiation (search for similar items in EconPapers)
JEL-codes: L11 L13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-03
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://repecsrv.uv.es/paper/RePEc/pdf/eec_1107.pdf First version, 2011 (application/pdf)

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Journal Article: Entry and exit in a vertically differentiated industry (2011)
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