Using a two-period duopoly model with vertical differentiation, we show that there exists a unique subgame perfect equilibrium where the first entrant supplies a lower quality and gains higher profits than the second entrant. We also prove that this entry sequence is socially efficient.
Tedeschi, P., Lambertini, L., Would You Like to Enter First with a Low-Quality Good?, <<BULLETIN OF ECONOMIC RESEARCH>>, 2007; 59 (3): 269-282. [doi:10.1111/j.0307-3378.2007.00262.x] [http://hdl.handle.net/10807/31133]
Would You Like to Enter First with a Low-Quality Good?
Tedeschi, Piero;Lambertini, Luca
2007
Abstract
Using a two-period duopoly model with vertical differentiation, we show that there exists a unique subgame perfect equilibrium where the first entrant supplies a lower quality and gains higher profits than the second entrant. We also prove that this entry sequence is socially efficient.
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