Quality-Based Competition, Profitability, and Variable Costs

摘要: We consider the impact of variable production costs on competitive behavior in a duopoly where manufacturers compete quality and price two-stage game. In pricing stage, we make no assumptions regarding these costs---other than that they are positive increasing quality---and about whether or not market is covered. investigate broad family cost functions show how shape impacts equilibrium product positions, profits, coverage. find seemingly slight changes to function's curvature can produce dramatically different outcomes, including degree differentiation, which competitor more profitable (the one offering higher lower quality), nature itself (covered uncovered). Our model helps predict explain diversity outcomes see practice---something previous literature has been unable do.