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Duopoly quality commitment

Pu-yan Nie

Economic Modelling, 2013, vol. 33, issue C, 832-842

Abstract: Firms' quality commitment can efficiently improve the demand. This paper addresses the quality commitment under the duopoly. By establishing a Cournot model, the effects of quality commitment are discussed. Firstly, under one-sided quality commitment, the higher efficiency firm committing in quality brings about larger price difference, larger price dispersion and higher social welfare than the lower efficiency firm launching quality commitment. Secondly, bilateral quality commitment reduces price difference and price dispersion. Thirdly, the social welfare reaches maximization under bilateral quality commitment. Finally, two firms' optimal strategies are no-commitment or simultaneously commitment and the threshold value to commitment in quality is outlined.

Keywords: Product substitutability; Quality commitment; Duopoly; Game theory (search for similar items in EconPapers)
JEL-codes: C61 C72 D4 L1 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.econmod.2013.06.010

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