Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities

Mario Samano and Marc Santugini

CIRANO Working Papers from CIRANO

Abstract: We analyze the type of market structures that arise in the long-run when quality externalities and asymmetric R&D capabilities exist in the context of a quality-ladder dynamic model. An example of such externalities is a patent release by the leading fi rm: an improvement of quality of this firm's good a ects the quality of the other fi rms' products. This externality can be thought of as an increase in compatibility in a network. We show that it is possible for this model to generate, in the long-run, multi-modal probability distributions over di fferent market structures from the same parameter values. In some cases, the lagging rm may even become the dominant fi rm depending on the degree of the externality. This may have implications for the estimation and simulation of this class of models.

Keywords: Differentiated-good markets; Quality-ladder model; Externalities; Industry dynamics; Market structures (search for similar items in EconPapers)
JEL-codes: C61 C73 L13 (search for similar items in EconPapers)
Date: 2017-11-15
New Economics Papers: this item is included in nep-com, nep-gth, nep-ino and nep-mic
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https://cirano.qc.ca/files/publications/2017s-24.pdf

Related works:
Journal Article: Long-run market configurations in a dynamic quality-ladder model with externalities (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2017s-24

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