Market Coverage and the Existence of Equilibrium in a Vertically Differentiated Duopoly

Giulio Ecchia and Luca Lambertini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: The existence of a pure-strategy subgame perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost. The alternative cases of partial and full market coverage are considered. It is shown that there exists a parameter range where the incentive to decrease differentiation arises for the high-quality firm, preventing firms to reach a pure-strategy duopoly equilibrium.

Date: 1998-05
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:311

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