Cournot and Bertrand Competition with Vertical Quality Differentiation

Reiko Aoki

No 146, Working Papers from Department of Economics, The University of Auckland

Abstract: We consider a model of vertical quality differentiation. We show that in Coumot (quality setting) competition firm's profit is increasing in its own quality and decreasing in its rival's quality. This differs from the results for Bertrand (price setting) competition and conforms to some previously made assumptions concerning profit functions in a setting of vertical quality differentiation. However, even in this case, when an initial stage in which firms make as costly investment in quality is added, an asymmetric equilibrium results. This follows from the fact that in both types of competition, it is possible to improve profit by moving away (either by choosing higher or lower quality) from rival's quality. This paper is the same as manuscript dated 1988 of the same name.

Keywords: vertical quality differentiation; Economics (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (1)

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