Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, April 20, 2011

Entry and exit in a vertically differentiated industry

Posted by D. Daniel Sokol

Silviano Esteve-Pérez (University of Valencia) explores Entry and exit in a vertically differentiated industry.

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".

http://lawprofessors.typepad.com/antitrustprof_blog/2011/04/entry-and-exit-in-a-vertically-differentiated-industry.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef014e86f9f36b970d

Listed below are links to weblogs that reference Entry and exit in a vertically differentiated industry:

Comments

Post a comment