Sequential versus simultaneous choice with endogenous quality

Reiko Aoki; Thomas J. Prusa

doi:10.1016/0167-7187(95)00516-1

Sequential versus simultaneous choice with endogenous quality

Reiko Aoki, Thomas J. Prusa

School of Arts and Sciences, Economics

Research output: Contribution to journal › Article › peer-review

73 Scopus citations

Abstract

In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.

Original language	English (US)
Pages (from-to)	103-121
Number of pages	19
Journal	International Journal of Industrial Organization
Volume	15
Issue number	1
DOIs	https://doi.org/10.1016/0167-7187(95)00516-1
State	Published - Feb 1997

All Science Journal Classification (ASJC) codes

Industrial relations
Aerospace Engineering
Economics and Econometrics
Economics, Econometrics and Finance (miscellaneous)
Strategy and Management
Industrial and Manufacturing Engineering

Keywords

Endogenous quality choice
Investment timing
R&D

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10.1016/0167-7187(95)00516-1

Cite this

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abstract = "In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.",

keywords = "Endogenous quality choice, Investment timing, R&D",

author = "Reiko Aoki and Prusa, {Thomas J.}",

note = "Funding Information: We gratefully acknowledge the financial support of the Japan Foundation Center for Global Partnership and the Suntory Foundation. Aoki thanks the Institute for Social and Economic Research at Osaka University, where preliminary work on this paper was done, for their hospitality. We would like to thank John Hillas, Hajime Myazaki, two anonymous referees, and Joe Harrington as editor for helpful suggestions.",

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N2 - In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.

AB - In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.

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KW - Investment timing

KW - R&D

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Sequential versus simultaneous choice with endogenous quality

Abstract

All Science Journal Classification (ASJC) codes

Keywords

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