Author : Raphael Auer
Release : 2014
Genre : Competition
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Spatial Competition in Quality - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Spatial Competition in Quality write by Raphael Auer. This book was released on 2014. Spatial Competition in Quality available in PDF, EPUB and Kindle. We develop a model of vertical innovation in which firms incur a market entry cost and position themselves in the quality space. Once established, firms compete monopolistically, selling to consumers with heterogeneous tastes for quality. We establish existence and uniqueness of the pricing game in such vertically differentiated markets with a potentially large number of active firms. Turning to firms' entry decisions, exogenously growing productivities induce firms to enter the market sequentially at the top end of the quality spectrum. We spell out the conditions under which the entry problem is replicated over time so that each new entrant improves incumbent qualities in fixed proportions. Sequential market entry overcomes the asymmetry of the location problem, which unavoidably arises in the quality spectrum because of its top and bottom ends. Our main technical contribution lies in handling this asymmetry, a feature absent in Salop (1979) and other circular representations of Hotelling (1929) and Lancaster (1966).