Help us to help you: how consumer data can alter quality races

Christian Trudeau and Zheng Wang ()

No 1501, Working Papers from University of Windsor, Department of Economics

Abstract: Recent technological changes have made it easy for firms to collect data on their consumers, which in turns allows them to improve the efficiency of their R&D. We explore the strategic interaction that occurs when two firms compete in a vertically-differentiated market to acquire this data and invest in R&D to set the quality of their product. Among our results, we find that if the initial quality lead is not too large, there exists equilibria where the laggard is able to reverse the lead by being particularly aggressive in acquiring this consumer data. While total welfare is higher when the initial leader maintains its lead, consumers prefer leapfrogging.

Keywords: consumer data; vertical differentation; quality race; leapfrogging (search for similar items in EconPapers)
JEL-codes: C72 L11 L13 L41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2015-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1501.pdf First version, 2015 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:wis:wpaper:1501

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