STRATEGIC QUALITY CHOICE UNDER UNCERTAINTY: A REAL OPTIONS APPROACH*

Grzegorz Pawlina and Peter Kort

Manchester School, 2010, vol. 78, issue 1, 1-19

Abstract: In this paper we study the effects of demand uncertainty and imperfect competition on market entry and product quality choice. We allow for either fixed or flexible quality. Under a fixed quality choice, the follower chooses a higher quality provision. Quality is shown to generally increase with the volatility of demand. The strategic quality choice by the follower may trigger the exit of the leader. Furthermore, flexibility in the leader's quality choice can constitute a strategic disadvantage. Finally, the degree of horizontal differentiation between the supplied goods plays a pivotal role in determining the market structure in the long run.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/j.1467-9957.2009.02124.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:manchs:v:78:y:2010:i:1:p:1-19

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1463-6786

Access Statistics for this article

Manchester School is currently edited by Keith Blackburn

More articles in Manchester School from University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().