Product Quality and Market Structure

Takeo Nakao

Bell Journal of Economics, 1982, vol. 13, issue 1, 133-142

Abstract: This article studies the relationship between the level of product quality and the structure of an industry under fully dynamic conditions, in which innovations are assumed to take place successively. We extend the Nerlove-Arrow-Gould model of advertising behavior of a monopolist to the R&D activity of oligopolists under the Cournot-type assumption and the limited joint profit-maximization hypothesis. The comparative static results show that an increase in the number of oligopolists lowers the pace of improvements in the industry's average product quality. But within the context of our model there is no definite relationship between the number of oligopolists and the R&D expenditure-sales ratio.

Date: 1982
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